We’re big advocates of do-it-yourself finances and believe everyone has the ability, if they wanted. That doesn’t mean we’re against getting some help from time to time. Let’s face it, not everyone is equipped, comfortable or willing to do their finances themselves. If that’s the case, it’s a good idea to find a financial advisor to help you along the way.
You want to find an advisor you are comfortable with, who you trust, and has a similar investment philosophy as you. Eventually, the financial advisor will need to know all about you, your finances and your goals. You’ll have to find someone you are comfortable with to share this information.
When you ask the right questions, you can find a financial advisor that can help you with anything from budgeting, investing, or retirement to estate planning, buying a house and more.
How Is The Advisor Paid?
A great question to ask. There are several pay models that financial advisors can work under. Fee only, commission only and fee based are the three pay models. Is one better than the other? Some people think so.
Fee Only
Fee only advisors get paid per hour, per meeting, or just a flat rate for asset management. These advisors aren’t compensated based on what you invest in or what financial products you buy. To find fee only advisors in your area, NAPFA, the National Association of Personal Financial Advisors, is a good place to start.
Commission Only
Commission only advisors don’t charge per office visit or hourly. Instead, when they sell a financial product, like a mutual fund or insurance, they receive a commission from the company.
Fee Based
The hybrid advisor, or fee based, receives most of their income from fees. They may also receive commissions from selling certain financial products.
So, Which Is Better?
There is a lot of differing opinions out there. Most of it leans towards fee only advisors as the best option. The belief is a fee only advisor will give you the best advice because they don’t make money off any financial products. Thus, they won’t recommend a higher commission product, over the best product for your situation, just to boost their own income.
This may be true. But I don’t buy it. Compensation, alone, does not guarantee that a financial advisor will, or won’t, work in your best interest. It just doesn’t. Fee only advisors tend to be recommended because, the belief is, it eliminates any conflict of interest. By doing so, it should prevent being offered a higher cost, higher commission product over a lower cost product that achieves the same results. But it doesn’t guarantee it.
More importantly, understanding pay gives you an idea what to expect when they propose different financial products to you. Eventually it all comes down to cost. Is the advice given in your best interest and does it come with added value? If not, the cost is not worth it and neither is that financial planner.
Look For Those Letters
Look for that alphabet soup of acronyms after their names. Certifications like CFP (Certified Financial Planner) or CPA/PFS (Certified Public Accountant/Personal Financial Specialist) tend to carry more weight in the financial world.
These designations require extra coursework and testing before getting certified. They must meet a strict code of ethics, a fiduciary duty to put your best interests first. And must commit to continuing education and ethics classes to maintain their certifications. Don’t be afraid to ask about their certification process, what is required and what their fiduciary duty means.
Do Your Research
A background check may sound excessive, but it only takes a few minutes to do. Let’s face it, there are always a few bad apples out there. They tend to give the entire industry a bad name. But it’s best to find that out now, then a few years down the road.
The easiest way to research any prospective financial planner is through FINRA, the Financial Industry Regulatory Authority. If they are a CFP, you can verify their certification or look up any disciplinary actions at the CFP Board website. Take the time to research the person and their firm. Any reputable financial advisor won’t have anything to hide and should push any prospective clients to look them up.
Conclusion
In times like these you want to find a financial advisor that understands the current climate in the markets as much as the financial products they recommend. You can find a financial advisor just to bounce ideas off, as an emotional backstop, or to manage your money entirely. We still believe everyone can manage their own money. But there’s no shame in asking for help. The extra cost is worth it, if it gives you piece of mind.
