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When managing your finances becomes a chore, it might be time to find a financial advisor. A good financial advisor can help invest your money, plan for future goals and provide a sounding board during volatile stock market drops.
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The task of locating the best financial advisor for you can be daunting, though, especially when you’ve never worked with a professional of this kind before.
“Finding an advisor should not be an intimidating process,” says Krista Aliga, senior financial advisor at Personal Capital. “It’s important to find a financial advisor that is qualified, trustworthy and offers transparent pricing.”
1. Determine If You Need a Financial Advisor
The decision to use a financial advisor can be driven by many circumstances, such as retirement, a new job, receiving a windfall, or simply the resolution to become more financially responsible.
For many, reading books and investing websites provides enough background to begin investing. With robo-advisors like Betterment, Schwab Intelligent Portfolios and Wealthfront, it’s affordable and easy to get sound investment management. Many digital investment advisors offer access to human financial advisors as well.
But if money management isn’t your strength, or you want more comprehensive service than just portfolio management, then it might be worth paying for a financial advisor. Fortunately, you can choose to work with financial planners in a range of capacities. You may engage a planner’s service just for occasional questions; others, meanwhile, will handle all of your financial life.
2. Know Yourself Before Finding a Financial Advisor
Before seeking a financial planner or advisor, understand the services that you need. A financial advisor can help you with:
Investment selection and management
College, retirement and goal setting
Tax planning strategies
Budgeting, cash flow and debt analysis
Legacy, estate and charitable giving guidance
Financial support and counsel, especially during tumultuous investment market cycles
Determine what services you need professional support for, then make sure potential financial advisors are experienced in at least those areas.
3. Keep Financial Advisor Credentials in Mind
Due to the dozens of money management and financial planning credentials out there, evaluating potential advisors’ bonafides can be confusing.
Robert Johnson, CEO at Economic Index Associates, recommends sticking with the most well-recognized financial planner credentials, such as a Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP). These individuals have completed extensive courses and demonstrate work experience in financial planning and management. Additionally, they have passed rigorous exams and abide by a code of ethics.
Although CFA and CFP are the most highly regarded credentials, graduate degrees in finance, business, law and accounting, among others, are also helpful.
You’ll also want to look for one other term when screening advisor candidates: Is someone a fiduciary, meaning are they legally and ethically obligated to act in your best interest?
If the answer is no, you may be better off elsewhere.
4. Watch for Fees
Fees matter as every dollar you pay to a financial advisor is a dollar that is not going into the financial markets to grow and compound your wealth. Here are four common fee structures:
Fees as a percentage of assets. Fees based on assets under management, or AUM, is a typical structure for wealth managers and those who work with larger accounts. If your account balance is $100,000 and the advisor charges 1.25% of AUM annually, then your annual management fee will be $1,250. Many advisors have sliding scales so that as asset balances increase, the fees decrease. It’s not uncommon to find a 1.25% fee for assets up to $500,000 and then 1.0% from $1 to $5 million and 0.75% between $5 and $10 million AUM.
Flat rates for a la carte services. You may pay a set rate for consultations with a CFP or a personalized comprehensive financial plan. This type of payment schedule may appeal to those who only need occasional professional financial advice.
Commissions. Commission-based advisors are paid via a small fee for a particular transaction, similar to an insurance agent who receives a percentage of the charge of your insurance premium. Clients of commission-based advisors should be aware of any financial advisor conflicts of interest and check fees carefully. These types of advisors might be incentivized to offer higher fee products.
Automated financial advice. So-called robo-advisors that manage investment portfolios algorithmically typically charge fees based on assets under management or a subscription. Some robo-advisors also offer human financial advisors. Management fees range from zero at SoFi Invest and Schwab Intelligent Advisors to 0.89% at Personal Capital, where CFPs are available for all clients (fees decline as assets increase).
Finally, bear in mind that fees shouldn’t be your only concern—you don’t want to, for instance, pick the cheapest advisor if they aren’t going to be able to do a good job. Choose the financial advisor who’s the best fit for you and your budget.
5. How to Find a Financial Advisor
Now that you’re familiar with the financial advisor landscape, you’re ready to find the best financial planner or advisor for you. One place to start is to ask trusted professionals like lawyers and accountants you already use. Friends and colleagues are also potential sources for financial advisors.
If those sources don’t turn up suitable potential advisors, look to industry organizations, like the National Association of Personal Financial Advisors (NAPFA), the Garrett Planning Network or the XY Planning Network. Each contains databases of fiduciary financial planners.
As you begin your search, remember to take your time and perform your due diligence. That means running background checks on those who may manage your money. You can easily do this by checking their credentials on BrokerCheck, an industry site logging disciplinary history and client complaints. You may also ask potential advisors for references, though keep in mind that they may cherry-pick on the most enthusiastic clients for you to talk to.
An investment in time before committing to a specific advisor can help ensure that you end up with a wise financial manager for your situation.
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