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Finding a reliable financial advisor was already difficult. Recently, the Court of Appeals overturned a pending Labor Department rule that was misleading financial consumers. It is important to understand whether your financial advisor will be acting as an assistant to you or, instead, seeking suitable investments for you. However, it’s also important to know whether it’s a reliable person who understands your needs, offers an approach that feels comfortable, and has the experience for your unique circumstances. To help navigate the sometimes stressful search, we’ve put together our top five recommended questions to ask when looking for a financial advisor.
1. Are you a fiduciary?
The fiduciary standard legally obliges advisors to put your best interests before their own. Advisors operating under a fiduciary standard must disclose any conflicts of interest and share with you whether they benefit from recommending a product or other professional. Advisors must be transparent about the fees they receive for that advice.
In contrast, the suitability standard is a standard that requires advisors to suggest investment products that are suitable for you. There is no standard for concluding that an investment will help you achieve your goals or is in your legal interests. In addition, there is no requirement to fully disclose any conflicts of interest, potentially allowing an advisor to recommend products that provide higher commissions for themselves rather than similar products with lower fees. Can
There are wonderful advisors and bad advisors who operate under both fiduciary and suitability standards. We operate under the fiduciary standard and highly value the trust we know it provides.
2. What’s your credit?
A consultant’s professional designation and experience matter. This gives you a lot of insight into the advisor’s areas of knowledge and expertise. There are over 100 different types of credentials and they can be very confusing. If you’re looking for a financial advisor, you may be at least familiar with these three credentials that reflect broad levels of training and commitment:
CFP® – Certified Financial Planner®
CFP® professionals have completed university-level financial planning courses, met experience requirements, and cover 72 topics ranging from investment and risk management to tax and retirement planning, legacy management, and the integration of all these disciplines. Has passed the rigorous CFP® Board examination. They are also committed to ongoing education and a high ethical standard. more information: http://www.cfp.net
CFA® – Chartered Financial Analyst®
To earn the CFA credential, professionals must pass 3 rigorous exams, each requiring at least 300 hours of master’s degree-level study covering financial analysis, portfolio management, and wealth management. Professionals must also accumulate at least four years of qualified investment experience and commit to a high ethics statement annually. more information: www.cfainstitute.org
CIMA® – Certified Investment Management Analyst®
CIMA focus on asset allocation and portfolio construction. The program of study covers 5 core subject areas and applicants must meet experience, education, examination and ethical requirements. CIMA must also commit to ongoing professional education. more information: www.imca.org
3. What services and products do you offer?
Make sure you look for an advisor and firm that best suits your needs. If you need someone to help you with your investments, you can look for a firm that has a range of investment solutions, such as an asset management firm.
If you need help assessing your current circumstances and creating a plan to reach various goals in your life, you can look for a financial planner. This advisor can help you consider retirement and college needs, tax strategies, risk management and possible wealth transfers.
If you need both financial planning and investment advice, then you should look for a wealth manager. This advisor has wide expertise and takes a holistic approach to guide you through comprehensive planning and portfolio management.
4. How are you compensated?
Do not be shy; Ask about fees! Every professional deserves to be paid for their expertise and services. By understanding how an advisor is compensated, you can determine whether the advisor’s interests align well with yours.
commission only These advisors are compensated based on the investment products you choose such as mutual funds, structured products, insurance policies or annuities that they buy or sell for you.
fee only – Independent advisors often only charge a fee for providing advice. Their fees are often stated as a percentage of the assets they manage for you so that they also benefit if your portfolio rises and are penalized if it declines. They may also charge fixed fees for specific services.
fee based – These advisors may charge a fixed fee for the financial planning services they provide to you and collect a commission on any financial products you buy or sell. These can include mutual funds, real estate investment trusts (REITs), annuities and insurance.
5. What’s your outlook for someone like me?
It is important to know that the advisor you are looking for has experience working with people in your circumstances. This is especially true if your financial situation is complicated by the wealth you’ve accumulated over the course of your career. Ask the consultant to tell you about common challenges the client had and what solutions were offered.
Finding the right financial relationship can sometimes seem a bit overwhelming. It’s like dating; You have to meet a variety of people, ask lots of questions, and wait until it seems like a good fit. Rest assured that no matter what your circumstances, you can find an advisor who is excited to work with you and has experience with clients like yours.
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