How to Choose a Financial Advisor
Hiring a Professional Advisor to Assist with Financial Planning
Sep 27, 2009
Whether they refer to themselves as “financial advisor,” “financial planner,” “financial consultant,” or the variant, “financial adviser,” purveyors of financial products and advice are available across a broad spectrum of the financial world. In the United States, these titles are as likely to be found among insurance agents, stockbrokers and accountants as they are among fee-for-service financial planners. With so many choices and avenues available, where does the average consumer begin?
Financial Advice or Financial Planning?
People seek financial advice for a variety of reasons. Sometimes it is a relatively quick decision regarding life insurance or an investment choice. Other times, people seek detailed plans for major financial decisions such as retirement, college education, or estate planning. Regardless of the need, frustration often results from selecting an advisor whose background or approach ends up at odds with the consumer’s requirements.
Whereas a financial product choice may only require advice, decisions that have a significant and lasting impact on one’s life and legacy often require more detailed and complex levels of financial planning. Typically, the quest for financial advice generates additional questions and considerations that lead to a need for comprehensive financial advice and long-term planning.
Financial Advisor, Investment Consultant, or Financial Planner?
For some, the need to have a comprehensive and detailed financial plan for every aspect of their financial lives is important to them. Others seek specific advice regarding the myriad of investment and insurance choices available in the marketplace. A third group feels comfortable making most of their own financial decisions, but may seek guidance from a financial professional to check their progress or to provide expertise in a particular subject, such as estate planning.
The financial professional’s title and means of compensation, while important, are not the only reasons to select one individual over another. Consumers should be cautious of important sounding titles, as there is very little regulation over who can or cannot refer to themselves as “consultants” or “planners.” When selecting a financial advisor, it is best to focus on one’s specific need for financial advice and to choose one or more financial professionals who can reasonably meet these needs.
Key Questions to Ask When Seeking Financial Advice
Locating a qualified, competent financial planner or advisor whose approach and business style are appropriate for one’s particular financial planning needs is rarely a simple task. The Certified Financial Planner Board of Standards, Inc. recommends interviewing several financial planners to find one who may be a good fit. They also suggest several questions consumers should ask when interviewing financial planners.
- Experience – Although length of service as a financial advisor may be a factor, the type of advice and counseling in which the advisor specializes is also important. For most people, an advisor adept at providing financial advice to individuals and families is desirable. Consumers should also inquire about any formal disciplinary actions in the advisor’s past.
- Services – Some advisors offer advice and planning only, whereas others may also be licensed to sell investment securities and insurance policies.
- Style – What approach does the advisor take toward individual financial planning? Some advisors prefer a comprehensive or holistic approach to financial planning, while others are more focused on specifics, such as retirement, investment advice or wealth management.
- Compensation – Every bit as important as asking how much the advisor charges for financial advice is asking how the advisor is compensated. Fee-only financial planners charge a flat rate or asset-based fee for their advice. Other advisors may not charge a separate fee but instead are compensated via commissions paid from the sale of investment or insurance products. Others may charge both a fee for advice and receive commissions from the sale of financial and investment products.
As with other important decisions, choosing a financial advisor or similar professional requires some due diligence before making a commitment. For some, a licensed investment advisor or insurance agent with a clean background will do nicely. Others require and insist upon an independent financial advisor with many years of experience and CERTIFIED FINANCIAL PLANNER™ or similar professional credentials. Conducting smart research and interviewing several advisors can help identify the right financial consultant for the desired task.
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