Seeing a financial advisor is an important decision but the problem is where should you start? Getting started can be overwhelming and intimidating and the amount of information out there is infinite. Simply know what you are looking for and how to look. Break down everything into steps so that the process will be simplified.
Let's start by narrowing down the financial field since almost everyone calls themselves a financial advisor. Commission-based, fee-based, and fee-only are the three basic types of advisors based on how they are paid.
Commission based advisors such as brokers, insurance agents, registered representatives receive commissions from the financial products they sell such as mutual funds, annuities, and insurance. They have their Series 6 or Series 7 and are often employed by large financial institutions. There is a major conflict of interest because part (or in some cases all) of what they are paid is based on what they sell. It is important to be aware that the temptation of commission is there and it can influence their recommendations for you.
Fee-based advisors are relatively new to the financial world. Fee-based advisors are like the commission based advisors who generally hold a license to sell investment or insurance for a commission and they are typically affiliated with a broker or agent. Fee-based advising is confusing because they provide financial planning for a fee just like fee-only advisors. However, they sell products and get commissions which is the important difference. Their fee-based recommendations could and often do include purchasing products they receive a commission on which is a major conflict of interest.
For comprehensive financial planning and/or asset management, fee-only advisors are the most advisable one to have. For the best interest of their client, fee-only advisors have a fiduciary duty. They only make money through hourly rates, flat fees, or a percent of the assets they manage. They usually provide more comprehensive advice including estate, retirement, investing, taxes, education funding, and insurance planning even if they don’t receive commission or fees based on product sales.
An advisor who provides hourly consultation is the best option for you if you have questions around specific financial situations such as buying a house, going back to school, or selling a business. They can give you a total cost estimate upfront based on the scope of work needed and they charge an hourly fee.
To reach your financial goals, you need a professional to create a one-time road map. You want them to look at everything such as insurance, education, investments, retirement, etc. Based on the scope of the project for a comprehensive financial plan, advisors charge either an hourly rate or a flat fee.
If you want a long-term financial partner then an asset manager will be good to manage your assets. They will provide continuous comprehensive financial planning throughout life’s stages and changes and they will also invest and manage your money. They charge a percentage of the assets they manage for you.
Credentials: CFP, CFA, CPA, and ChFC are some of the several licenses and certifications an advisor can have. In the industry, the CFP (Certified Financial Planner) is generally considered the gold standard. To become a CFP, an advisor must have several years of experience, take an extensive course and pass a six-hour exam. They are held to a strict ethical standard and must complete continuing education once they are certified.
Ethics: On BrokerCheck, you can easily see if an advisor has ethical or legal marks against them such as certain criminal charges, bankruptcies, investigations, or unpaid liens. Also, on part 2 of their ADV, advisors are required to disclose any disciplinary actions and conflicts of interest. You can download their ADV from the SEC’s Investment Adviser Search website or you can simply ask it from your advisor.
Experience: What was their previous experience? How long have they been in practice? Education is important but advisors need to also have experience in dealing with real-life financial situations.
FIT: Trusting and liking your advisor is the most important part. Much like a therapist, your advisor will know most of your personal details so you will definitely share an intimate relationship. Most advisors for them to tell you about their practice, they will provide a free consultation. Shop around since advisors have different styles and philosophies.
The National Association of Personal Financial Advisors (www.napfa.org) is the best place where you can find advisors. NAPFA is the country’s leading organization of fee-only advisors. You can find advisors from CFP websites as well. And lastly, you can ask your CPA, attorney, or other professionals you trust for a recommendation.
Flynn Financial Group Inc