You know that for smart financial planning, having a financial advisor you can depend on and trust is key, but you may be unsure as to how to find one. The good news is that you are not alone: many people have the same questions and concerns that you do when it comes to choosing the person who will help you navigate the often choppy financial waters of everything from paying your bills to planning your estate. As you begin your search for a financial advisor, keep the following information and tips in mind.
Choosing a Financial Advisor: Tips That Everyone Can Use
Do Your Homework:
Potential Advisors should be willing to meet with you to discuss their investment opportunities and approaches, and this is your opportunity to ask informed questions, such as who they have worked with in the past and who, based on their expertise and background, they would consider their ideal type of client. You should be well-versed (as much as possible) in the potential investor’s education, background, and track record so that you can ask the truly important questions, like the ones below, during your meeting. Remember that you are interviewing the investor, not the other way around, and that you shouldn’t feel as though you have to settle for anyone who does not meet your standards. Here are some things that you should look for in your pre-meeting research, as well as during your actual face-to-face meeting with a potential advisor:
Is The Advisor Fee-Based or Commission-Based?
Fee-based advisors generally have fewer conflicts of interest and are less likely to recommend frequent transactions in your portfolio, but, as with everything and everyone, this general rule of thumb varies.
When Selecting Your Portfolio, The Advisor Should Focus on Risk:
This will help to keep your portfolio consistent with your risk tolerance, which will give you the best chance of staying invested through your time horizon.
The Advisor Should Provide an Investment Policy Statement:
This may be done during your meeting with them, and should contain specific objectives concerning target return, risk tolerance, anticipated withdrawals and contributions, time horizon, tax constraints, and regulatory issues, if applicable.
What Services Does the Advisor Offer?
These can include, but are not limited to, the following: asset allocation advice, tax-record keeping, mutual fund investing, insurance planning, securities trading, estate planning, day-to-day investment monitoring, portfolio rebalancing, investment choice recommendations, etc.
Use Referrals Cautiously:
Many people choose their financial advisor based on the recommendation of a family member, friend, or a friend-of-a-friend, but that doesn’t mean that this is necessarily the best approach. Those who know their advisors personally may be less qualified to judge their professional abilities, and may spend so much time extolling an advisor’s strengths that they may also be less qualified to point out any of their weaknesses. Choose three referrals and investigate the background of these investors closely, using impartial resources, before you decide whether or not to meet with them.
Consider Your Personal Needs and Preferences:
Do you have extensive financial experience or none at all? Are you looking for someone who will make decisions for you, or do you prefer more control? Are you an aggressive investor, or a more conservative one? Answering these questions will play a large role in the type of financial advisor you look for, as well as the one whom you ultimately choose.
Ask The Right Questions:
In addition to those already mentioned, as well as any that you yourself feel are applicable, here is a short list of questions that you should ask before making a decision:
• Do you merely give advice, or are you also involved in implementation of financial plans?
• If I asked your clients to describe your strategies and performance, what would they say?
• What is your investment philosophy?
• What is the average length of time that you have worked with the majority of your clients?
• How often would you contact me, and what would be the preferred format?
• What kind of independent research does your firm conduct?
• Do you work together with other professionals, such as lawyers accountants, and insurance specialists when it is required?
• Do you or does someone in your firm offer services such as personal portfolio management, tax consulting, and estate planning?
• What are your areas of expertise?
Determine Your Financial Needs
This can be attempted by asking yourself the following and similar questions before meeting with potential advisor’s:
• At what age would I like to retire?
• What is the dollar amount or percentage of my final income that I would like to have available upon retirement?
• What is the average return that I would like to achieve on my investments?
• What is my life expectancy?
• Am I interested in investing in a house, my child’s education, a vacation home, retirement or any other areas or properties?
• How much would like to leave for my family after my death?
• What are my non-retirement personal assets?
• What are my current retirement assets?
• What are my income sources per month (employment, alimony, investment income, trust, etc) and how much money do these sources bring in on a monthly basis? On a yearly basis?
• What are my monthly expenditures per month?
• What is my current asset allocation?