5 Things to Consider When Hiring a Financial Advisor

5 Things to Consider When Hiring a Financial Advisor

Some of these looming questions often make financial planning a complicated and intimidating task for investors like you causing you to worry enormously. But it doesn't have to be that way!

  • How much money should I invest and where?
  • What is my current net worth?
  • Can I afford to retire?
  • How do I invest to achieve my short and long-term life goals?
  • How much money do I need and when?

Financial planning is a high-level process of defining your life goals for yourself and your family such as buying a home, taking that dream vacation, saving for your child's education, planning for your retirement, etc. and the list could go on. Proper financial planning can help you with good money management so that you can achieve your dreams and at the same time it enables you to neutralize the impact of various financial stumbling blocks or uncertainties that may arise at every stage of your life.

The internet today is bombarded with websites offering financial advice online, but before making real progress, it is critical to ensure that the information you seek is coming from a legitimate source and that the conventional wisdom on financial management may not apply to your personal situation. So, it is crucial to hire the right financial advisor for a successful financial plan for you.

Who are financial advisors?

A qualified professional such as a "financial advisor" can help you make those financial decisions by developing tailored strategies based on your goals, needs and wants to achieve your financial future. A financial advisor is an expert who is armed with the knowledge, skill, and expertise to provide you a healthy dose of financial wisdom that can help you sail through your financial management journey smoothly.

Here's a quick checklist for hiring a financial advisor.

  1. Qualification
  2. Experience
  3. Compensation
  4. Standard of Care
  5. Objectivity and Working Relationship

Every single dollar has incredible value and hence managing finances is a big responsibility. It requires a lot of knowledge, research, study, and analysis so that the results are not regrettable. However, the best part is that you don't have to do it all alone.

  1. Qualification:

    When looking for a prospective financial advisor, a good starting point would be to know about his/her education qualifications, certifications, and licenses. Financial planning is a vast subject and has various specializations. Hence it is imperative to know if your advisor has the adequate competency and benchmark level of qualification to provide you with the best advice based on your situation.

    There are dozens of certifications and courses available to become a professional financial advisor. Some of the renowned certifications which are also highly regarded are Certified Financial Planner (CFA), Chartered Financial Consultant (ChFC), and Chartered Life Underwriter (CLU). These certifications are obtained after completing the course and qualifying the exams. Professionals who hold these certifications also abide by the code of ethics as per the course curriculum.

  2. Experience

    A significant experience in the financial domain would be an added advantage when it comes to hiring an advisor. It is an old school thinking that the advisors who have more years of experience are an ideal one. However, you should assess an advisor with his level of expertise and capability in dealing with long-term financial markets and investment allocations and working experience with other clients.

  3. Before striking a deal with an advisor, it is pertinent to get clarity on the following questions:

    • How long have they been an advisor?
    • How long have they been associated in the financial domain?
    • Do they have prior experience of solving that specific issue or improving financial situations?

    Such a thorough evaluation can help you find an advisor who can manage and plan your finance meticulously and also provide better recommendations to help you achieve your financial goals.

  4. Compensation

    The fee structure varies for every financial advisor. They typically charge in one of the following ways:

    • Hourly rate
    • A flat/ fixed rate to complete a specific project
    • Fee-based - they charge a particular percentage for an asset under management
    • Commission based
  5. Standard of Care

    In the financial ecosystem, all the advisors when working with their clients follow two distinct "standard of care" - a suitability standard and a Fiduciary Standard.

    So precisely what is the difference between these two standards of care?

    A suitability standard means that the advisors are allowed to sell various financial products and services to their clients based on their needs. But their advice or recommendation may be just suitable for you but doesn't necessarily mean that it will be the best for you. In short, they do not have to act in their client's best interests, such as brokerage firms and insurance companies

    Fiduciary standardis followed by advisors who are registered with Registered Investment Advisory firms (RIA). These fiduciaries are required to act for their client's best interest at any given point in time such as a professional who is in the business of delivering financial advice or provides recommendations.

    Now it is evident whom to contact when you are looking for an objective advice or a recommendation.

  6. Objectivity and Working Relationship

    Be sure to know a little more about your advisor before entrusting him or her with your money management project. Recommendations from your advisor carry a great deal of weight which can transform your life. While every aspect is crucial when hiring the right financial advisor, it is important to remember that you forge a healthy relationship with your advisor in order to align your expectations and talk with ease. The most important thing is to trust your instincts and find an advisor who can deliver objective advice without being biased.

    Some of the other characteristics that you must look out for in a financial advisor is that they should have a holistic view of your finance to be able to develop a clear strategy. A professional who is transparent and can proactively steer financial decisions to make recommendations, that is best for you, during critical market conditions and most importantly, which does not divert you from your well planned financial goals.

Bottom Line

Managing personal finance is not rocket science anymore. Many people have tasted success in the past using trial and experience. However, if you want to achieve your financial goals with accurate advice and recommendations, then the answer is pretty straightforward - look for the right financial advisor, who puts your interests first. After all, you're accountable for your financial future, and it is about your money!