By Sarah Stewart Legal Group
There are a wide variety of financial advisors to choose from nowadays. Some are fiduciaries, required to act in your very best interests, some are not. Some have extensive credentials and training, some just left their previous career as a bartender at your favorite club.
With so many options available, how can you choose the best financial advisor for you? Today we discuss 5 questions to ask your advisor to make sure they are the right fit for you.
(1) Are You an Investment Advisor or a Financial Planner?
There are a wide variety of Investment Advisors in the Financial Planning world, there are also Financial Planners. Investment Advisors do exactly that–they help you decide on the best investments to make, usually in stocks, bonds, and mutual funds. Financial Planners have a wider scope. They assist in helping with budgeting, investing, estate planning, and insurance policies. These two worlds are not necessarily mutually exclusive. Many of the best Investment Advisors will consider your financial plan as a whole and many Financial Planners have experience and success in choosing proper investments.
So, this is not the only consideration in this question.
If you want an Investment Advisor: Ask about their investment strategies. Do these strategies align with your own? What types of investments does the advisor prefer? Can you understand their investment strategies? Are they a chartered financial analyst or do they have one on their team?
If you want a Financial Planner: What is the planner’s desired demographic and expertise? Identify situations unique to you and ask the financial planner about their experience in that area. Ask if they are a certified financial planner or chartered financial consultant.
(2) Do You Have Fiduciary Responsibilities?
A fiduciary must put your interests before their own when making choices about your retirement portfolio. Many financial advisors are fiduciaries. Registered investment advisors, or those who work for registered firms, are usually fiduciaries as well. Fiduciary responsibilities may not affect all areas of your retirement portfolio with that particular advisor, so be sure to ask, and understand, where their fiduciary responsibilities end.
(3) How Are You Paid for Your Services?
Are they commission-based, fee-only, or fee-based? Those who work on commission get a commission for recommending a particular product. Fee-only advisors do not receive commissions. They are paid by charging certain fees for certain services. Fee-based advisors receive commissions and fees for the products they sell.
(4) What Are Your Credentials and/or Designations?
Advisors can carry specific designations. These are explained below:
Certified Financial Planner- CFPs must finish an educational program, pass a financial planning exam, and have extensive financial planning experience.
Chartered Financial Consultant- ChFCs must complete an educational program, pass several exams, and have extensive financial planning experience.
Chartered Financial Analyst-CFAs must pass a rigorous educational program with a series of exams and must have experience in investment decision-making.
(5) Do You Have a Backup Plan?
What happens if the advisor leaves the business, is on vacation, or becomes disabled? Is there someone else who will step in as your advisor? There should always be someone available as a backup contact when your advisor is unavailable.