What to look for when you are looking into hiring a financial advisor.
You've reached a point in your life where you have more money than before. You might not be super-rich, but you want to make decisions about your money that allow it to work best for you. That's where a financial advisor comes in. Of course, not all financial advisors are created equally. Some are better suited to helping you than others. When you're on the hunt for an advisor, there are a few things to pay attention to.
Pay Structure
How you pay an advisor can influence the type of advice you get and even whether that advisor is willing to work with you. A fee-only advisor charges you for the services provided, either on a hourly basis or in the form of a flat rate. An advisor who works on commission gets a percentage of the sale price of the investments you buy. While an advisor who works on commission might give you great advice, there's also the risk that he or she will recommend a product to you to increase the money he or she earns. Some advisors who work on commission only work with clients who have a substantial amount of money (think tens of thousands, if not more) to invest, as working with people with less money means they earn less.
Fiduciary
There are two standards an advisor can follow: the suitability standard and the fiduciary standard. An advisor who follows the fiduciary standard, or who has a fiduciary duty to clients, must act in your best interests. For that reason, it's often a good idea to look for an advisor who has a fiduciary duty to you. While an advisor who follows the suitability standard won't necessarily make bad recommendations to you, if you work with a fiduciary, you have the guarantee that any advice you receive will really be in your best interest.
Current Credentials
An advisor should have the appropriate credentials and their licenses should be up-to-date. A certified financial planner (CFP) has passed a tough exam and upholds a standard of ethics. A registered investment advisor (RIA) is licensed by the Securities & Exchange Commission or the appropriate state regulator and has a fiduciary duty to act in your best interest. An advisor who is a member of the National Association of Personal Financial Advisors works on a fee-only basis, takes a fiduciary oath every year, and follows a code of ethics. Look for any of those credentials when choosing your advisor.
Range of Services
It can be helpful to understand what services an advisor offers before you hire one. An advisor might offer just investment advice, for example. It's also possible for an advisor to offer a fuller range of services, from retirement planning help to insurance products. If you're just on the lookout for investment assistance right now, it can make sense to work with someone who focuses on that. But, if you think you'll want a more comprehensive financial plan now or in the near future, it can be a good idea to hire a full-service firm.
References
References and referrals can be the icing on the cake or the final nail in the coffin when you're looking for a financial advisor. Ask friends and family if they can recommend someone. If no one you know has worked with an advisor, you can look at reviews online. Another option is to ask the advisor if he or she can provide you with references. Listen to what others have to say before you make your choice. If someone else had a great experience, you might too. And if they didn't, you might be likely not to, as well.