Understanding Types of Financial Advisors
Some financial advisors provide financial planning services but do not offer investment management services. Others manage investments but provide little financial planning. Some have expertise in retirement income planning for those approaching retirement age or in wealth accumulation for those who won’t retire for another 10 or 20 years. It’s essential to know what type of financial advice you need in order to choose the right financial advisor for you.
Searching for Financial Advisors with Trusted Credentials
Not all credentials are created equal. Some organizations offer easy-to-obtain credentials for a fee, allowing vendors to obtain credentials and appear as professionals. To find financial advisors or planners with trusted credentials, look for someone with a CFP (Certified Financial Planner) or PFS (Personal Financial Specialist) designation, or an investment advisor with a CFA (Chartered Financial Analyst) certification.
Understanding How Financial Advisors are Compensated
There are many ways that financial advisors charge for their services, but the most trustworthy advisors are those who charge fees only. Before hiring the best financial advisor for you, it’s important to know about all the potential compensation methods the advisor might use, such as charging an asset-based fee, hourly fee, or earning commissions. You should understand the difference between a fee-only advisor and one who earns commissions.
Using Search Engines to Check Qualifications
Online searches are a great way to narrow down your options for advisors in your geographical area based on the required criteria. You can use financial advisor search engines to input specific criteria regarding the type of advisor you are looking for.
Asking Questions Before Hiring
Asking the right questions can help you filter out financial consultants you don’t communicate well with. How long has the advisor been practicing? How are they compensated? Can they offer you different retirement plans? You can use specific interview questions to determine how the financial advisor communicates, their area of expertise, and their ideal client.
Checking Credentials and Complaints
To ensure that the person is legitimate and has a good service record before hiring them, check the advisor’s credentials and complaint history through the Financial Industry Regulatory Authority (FINRA) or the Securities and Exchange Commission (SEC), or the Certified Financial Planner Board (CFP), or other membership organizations the advisor belongs to.
Learning to Recognize Fraud Risks
Fraud is more easily committed when someone is responsible for your money. Most trustworthy financial advisors use what’s called a “third-party custodian” to hold your funds, meaning your account is opened at a large, well-known firm like Charles Schwab or Fidelity. The advisor can execute transactions and provide services on the account, but reports and verification of signatures are done by the third-party custodian.
Frequently Asked Questions
What is a registered investment advisor? What is the difference between a financial planner and a financial advisor? Should I use the bank’s in-house advisor?
Sources: The Balance, National Association of Personal Financial Advisors, Kiplinger, Securities and Exchange Commission, Financial Industry Regulatory Authority
Source: https://www.thebalancemoney.com/how-to-find-the-best-financial-advisor-in-7-easy-steps-4032070
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