Your Step-by-Step Guide to Choosing a Financial Advisor
What Is a Financial Advisor?
A financial advisor is someone who assists in the management of your funds. This may involve investment advice, retirement planning, tax advice, and estate planning. Different types of advisors exist, and they may go by the names of CERTIFIED FINANCIAL PLANNER® or Registered Investment Advisor (RIA). Each one of these has different requirements, so it is important to know what they mean and how they can help in achieving your goals.
What Are the Types of Financial Advisors?
Financial advisors are typically categorized into two groups:
Fee-Only Advisors: These professionals are paid directly by the client and do not receive fees from the sale of financial products. This model avoids conflicts of interest.
Commission-Based Advisors: These advisors receive a commission from the financial products they suggest. It is not necessarily a bad thing, it just means that you need to be sure that their recommendations are made in your best interest.
When selecting a financial advisor, they should be a fiduciary. Fiduciaries are legally bound to act in your best interests, which provides an additional level of assurance to the relationship.
What are the Key Questions to Ask a Financial Advisor?
Are you a fiduciary?
A fiduciary has to act in your best interest. Non-fiduciary advisors may suggest “suitable” products that are not the best for you.
How do you get paid?
Learn about their compensation. What is their mode of payment, fee-only, commission-based, or both? Other common fee structures include per hour, percentage of assets under management (AUM), or flat fee.
What are my total costs?
Along with the advisor’s fees, see what other fees apply, such as fund expenses, transaction fees, and administrative charges. These fees can affect your long-term savings considerably.
What are your qualifications?
Look for certifications like CERTIFIED FINANCIAL PLANNER®, CFP®, RIA, or Chartered Financial Analyst (CFA). You can check their certifications from sources like Financial Industry Regulatory Authority (FINRA) professional designations database.
What is your investment philosophy?
Ensure their approach aligns with your financial goals. For instance, if you value socially responsible investing, ask how they can tailor your portfolio to reflect your values.
Who are your typical clients?
Choose an advisor who has worked with clients who are in the same or similar financial situation. For instance, if you are a business owner, then you should look for one who understands the needs of entrepreneurs.
How will we communicate?
Discuss the frequency of meetings and the ways of communication. Will they be contactable by email, phone, or physical meetings?
Who holds my investments?
Make sure that the advisor uses an independent custodian to keep your assets. This adds another level of safety and accountability.
What is your approach to taxes?
Find out how they include tax gain in their investment plans. Proper tax management is one of the most effective ways to increase your returns.
What benchmarks do you use to measure performance?
Make sure that the advisor uses the right benchmarks to judge the investments’ performance. They should be able to explain how these benchmarks apply to your portfolio.
What Are the Red Flags to Watch Out For?
As with any profession, many financial advisors are honest, but you should always be careful. Watch out if:
They don't explain the fees clearly.
They offer to give you high returns.
Their investment approach is not straightforward or quite complex.
They are not willing to share contacts or qualifications.
Why Choose Falcon Wealth Planning?
At Falcon Wealth Planning, we are a fee-only, fiduciary financial advisory firm. Our CFP® Professionals and RIAs ensure that your needs are well-planned-for as we strive to keep financial planning as simple as possible. We offer our services in investment management, tax planning, and wealth management to name a few.
Final Thoughts
Selecting the right financial advisor is a decision that will influence your financial situation in the future. You will be able to find an advisor who suits your goals and ideals if you ask the right questions and demand openness.
Are you ready to get started? Schedule a free financial assessment with Falcon Wealth Planning today and start your journey to financial freedom.
*The content in this blog is for general informational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Falcon Wealth Planning, Inc., a fee-only, true fiduciary, registered investment advisor, provides this information to give a broad understanding of financial concepts and strategies.