Finding a financial advisor to work with is a process that shouldn’t be taken lightly. In fact, choosing a financial advisor to work with could be one of the biggest financial decisions you will make in your lifetime. This person will help you plan when you can retire, how you can retire and what you’re able to leave behind when you’re gone.
Finding the right financial advisor means making sure you get the help you need based on your unique situation. So, what are some things you should consider when choosing a financial advisor? Here are some elements to keep in mind.
There are many different types of designations that financial advisors could pursue, often in addition to various professional financial licenses. In fact, there are 212 different credentials a financial advisor can hold (plus many others that can be firm-specific and not mean much outside of a particular company).
At Scarborough Capital Management, our financial advisors hold many credentials:
- CFP®: A CERTIFIED FINANCIAL PLANNER™ (CFP®) takes a holistic approach to helping clients manage their finances. They can help with: Financial planning, Retirement planning, Life insurance, Tax planning, and Estate planning.
- ChFEBC℠: A Chartered Federal Employee Benefits Consultant℠ is a highly specialized financial professional who can help you sort through government-specific retirement benefits.
- CRPC®: A Chartered Retirement Planning Counselor℠ specializes in retirement planning.
- CCPS®: A Certified College Planning Specialist™ can help both students and their parents specifically plan for college costs.
- BFA™: A Behavioral Financial Advisor focuses on the “why” in financial decisions, helping clients stay focused on their goals and avoid making any emotional decisions that could derail their future financial security.
- RICP®: A Retirement Income Certified Professional specializes in retirement income planning.
Like doctors, financial advisors can specialize in one area or type of client. For instance, an advisor may work primarily with people in certain stages of their careers, such as mid-career Millennials or retirees. Depending on their area of specialty, there may be an industry certification to demonstrate this.
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When choosing a financial advisor, think about what you’re hoping to get from the relationship. Do you want someone to manage your investments for you? Do you just want someone who will create a financial plan and let you do the trading?
You should also think about your financial needs and goals. What are you working toward? Is it retirement? Saving for college? Buying your first house?
The more specific you can be in defining your needs, the easier it will be to narrow down your options.
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You can use a financial advisor’s area of expertise to help you determine if he or she is a good match for your situation. An advisor’s area of expertise should match your financial needs. You want to work with an advisor who has experience working with clients in situations similar to yours.
That isn’t to say you can’t benefit from working with an advisor who has expertise in other areas or life stages. Ideally, your financial advisor will be with you throughout your life, so equally important as his or her area of expertise is finding someone you connect with and can feel comfortable sharing your life with.
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Expertise and certifications are both good indicators to look for when choosing a financial advisor, but there are other important details to consider. For instance, how will you and the advisor work together? Financial advisors can be solo practitioners or work as part of a larger team. It’s important to understand upfront who your point of contact will be. You should also establish clear expectations about how often you’ll communicate and in what way. Do you prefer virtual meetings or face-to-face meetings? Email check-ins or phone calls?
Another detail that can’t be ignored is fees. Before choosing a financial advisor, understand how your financial advisor is paid. Ask about conflicts of interest and whether they are associated with a Broker Dealer (BD) or Registered Investment Advisor (RIA). If an advisor is associated with a BD or RIA, he or she will have a disclosure form called Form CRS that details the answers to these questions and more in an easy-to-read format.
There are some warning signs you may want to watch out for when choosing a financial advisor as well:
- Do they talk more than they listen?
- Do they promise to beat the market?
- Can they not explain how they are paid?
- Do you feel pressure to buy?
Watch out for any financial advisor who tries to push a certain investment in the first meeting or requires you to make a quick decision.
Communication with a financial advisor should be open, honest and clear. Work with someone you feel comfortable asking questions of, and know you’ll receive a clear response in return.
When it comes to questions to ask a potential advisor, the sky is really the limit. No question is too big or too small to ask. You should feel comfortable asking a potential financial advisor anything and trust that you’ll get a clear response. Full transparency is the key to any successful relationship.
To that end, here are some questions to ask a potential advisor:
- What is your background?
- What are your qualifications and certifications?
- Who are your typical clients? Who is your ideal client?
- Have you worked with clients like me before?
- What’s your investment philosophy?
- How will you manage my investments?
- How will we communicate and how often?
- Who will be my point-of-contact?
- How are you compensated?
- How much will working with you cost me?
In the age of the Internet, you may wonder if you need a financial advisor at all. Why would you pay for financial advice if you can find it on your own online?
Well, you certainly can study investment philosophy and create your own financial plan using resources online or at your local library. If you have the time, interest and education to research different accounts, choose investments, determine how much to buy and when to make trades, understand tax implications, understand how your estate plan works and keep your emotions at bay, you may not need a financial advisor.
If not, a financial advisor could be a helpful resource. Download our free checklist: The Value of a Scarborough Financial Advisor: Do You Really Need a Financial Advisor?
A financial advisor can also help you navigate challenging times in the market, when you may begin to question your investments or strategy.
Investing and financial planning can be confusing and challenging. While you can do it yourself, you certainly don’t need to. There are excellent financial advisors out there who have dedicated their careers to helping people like you.
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