8 Steps to Choosing the Right Financial Advisor

8 Steps to Choosing the Right Financial Advisor

1. Hire an advisor who is a fiduciary. 

By definition, a fiduciary is always ethically bound to act in your best interest.  This obligation eliminates conflict of interest concerns and makes their advice more trustworthy.  If your advisor is not a fiduciary and is constantly trying to sell you products, find somebody who has your best interest in mind.

2. Don’t necessarily hire the first advisor you meet. 

While it’s tempting to hire the advisor closest to home or the first one listed in the yellow pages, you need to find the advisor who is most compatible with you.  Take time to interview a few advisors and pick the one who is the best match.

3. Choose an advisor who specializes in clients like you.  

Some advisors specialize in retirement planning, others focus on business owners or medical professionals.  Some are better for young professionals starting a family.  Ask the advisor what kinds of clients he focuses on and understand his strengths and weaknesses.

4. Pick an advisor whose strategy fits your personal style. 

Each advisor has a unique strategy.  Some focus on picking individual securities, while others use mutual funds.  Some are aggressive investors and try to beat the market, and others are conservative and focus on preservation of capital.  Choose the one with which you are comfortable.

5. Ask about credentials. 

Ask your advisor about their licenses, tests and certifications.  Financial advisor tests include the Series 7, Series 66 or Series 65.  Others have gone a step further and become a CERTIFIED FINANCIAL PLANNER™ practitioner, or CFP®.

6. Don’t assume that a major brand on the door is a seal of approval. 

Most advisors start their careers with one of the major brokerage firms like Merrill Lynch, Morgan Stanley, UBS or Wells Fargo.  What often happens is that new clients are referred to the newest rookie in the office.  In addition, the major firms view their advisors as their “salesforce” and provide them with incentives to generate fees and commission for the parent company.   Advisors working for the major firms generally are not held to fiduciary standards.

7. Understand clearly how your advisor is paid. 

Some advisors are “fee only.”  Others are paid commissions on the purchase of sale of securities, annuities or life insurance.  Still others receive fees, called “trailers,” from mutual funds.   Advisors who are paid from the sale of products have an inherent conflict of interest that you should be aware of before you enter a relationship with them.

8. Ask what happens if your advisor retires or leaves. 

An advisor should have a succession plan that makes sense for you.  Solo advisors could leave you without a trusted advisor at a critical time.  If you have an account with a solo advisor at a major firm, your account will be passed along to someone else, who will initially be unfamiliar with your goals and objectives.  If this is a potential concern for you, find an advisory team who will be there for you for the long term.

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