Choosing a financial advisor is a crucial decision that can significantly impact one’s financial future, Temitope Aina discusses the factors that should be considered before choosing a financial advisor, who aligns with your financial goals and values.
Building a financial future can feel overwhelming. The sea of savings and investment options is vast, and conflicting advice can make it difficult to know if you are making the right decision.
A financial advisor can cut through the confusion so you can see the path to your savings goals more clearly. But how do you find an advisor that works for your specific needs?
There are a few factors to consider when choosing a financial advisor/counsellor to manage your portfolio on an ongoing basis or when you need assistance with creating a financial plan. A financial advisor counsels you based on your financial objectives, short- and long-term goals and how much risk you are comfortable with when investing.
According to analysts at Gunter Financial Group of Raymond James, establishing clear objectives will help narrow down your list of potential advisors to those who best fit your needs.
He added that considering seeking recommendations from friends and family or consulting your certified public accountant would help you get a trusted financial advisor.
As you research potential financial advisors, here are a few key considerations:
Decide your financial life
Before you speak to a financial advisor, decide which aspects of your financial life you need help with because advisors mostly provide more than just investment advice.
One of the best financial planners is the one who can help you chart a course for all your financial needs. This can cover investment advice for retirement plans, debt repayment, and insurance product suggestions to protect yourself, and your family and estate planning.
Depending on where you are in life, you may not need comprehensive financial planning. People whose financial lives are relatively straightforward, like young people without families of their own or significant debt, might only need help with retirement planning.
People with complex financial needs, however, may need extra assistance. They could be looking to establish college funds or trusts for their children, navigate aggressive debt payment situations or solve tricky tax problems. Not all types of financial advisors offer the same menu of services, so decide which services you need and let this guide your search.
Review your financial situation
First, gather your financial records and review your personal and financial situation, considering both what you want to accomplish and the kind of help you need. This step will help narrow your search. If you’re not sure what you need, you may want someone to help you get a picture of your spending patterns, assets, insurance, income, and short- and long-term goals first.
Understand your account and plan statements
Understanding your account and plan statements is key to controlling your investments. Check the statements over carefully as soon as you receive them. Familiarise yourself with the format, terms and codes used by your adviser/planner. If you ever find information in your account statement or plan that you do not understand, contact your adviser/planner immediately and get a satisfactory explanation.
Decide on the financial advice you need
Services offered by financial advisors vary from advisor to advisor, but they may provide financial advice on any of the following topics; investment advice, debt management, budgeting help, insurance coverage, tax planning, retirement planning estate planning, and college planning.
Learn about the different types of financial advisors
There is no federal law that regulates who can call themselves a financial advisor or provide financial advice. While many people call themselves financial advisors, not all have your best interest at heart. That’s why you have to carefully evaluate potential financial advisors and make sure they are good for you and your money.
Part of learning about the different types of advisors is understanding fiduciary duty. Some, but not all, financial advisors are bound by fiduciary duty, meaning that they are legally required to work in your financial best interest. Other people who call themselves advisors are only held to a suitability standard, meaning they only must suggest products that are suitable for you—even if they are more expensive and earn them a higher commission. Regardless of which kind of advisor you choose, you should make sure you know how they earn money. This helps you determine if their recommendations are better for you or their wallets.
Investment philosophy
Find an advisor whose investment philosophy aligns with yours. Your ideal financial advisor will take the time to learn about your objectives, stage of life, risk tolerance, and liquidity needs to create the right portfolio and financial plan for you. Many people also seek an advisor whom they can connect with on a personal level, as this is an important cornerstone in developing a trusted relationship with an advisor.
Ask for references
Ask your CPA or estate planning lawyer. In many cases, they already have a working relationship with a financial advisor. You should also consider asking friends and family members for a recommendation if they are in a similar stage of life and financial situation.
Ask about education/training
Most financial advisors routinely participate in what are called “advanced training” classes. Many times, these classes are heavy on sales training and light on “real” education. If you want to know what your advisor has studied, ask to see the manual from the last educational conference he or she attended. If it has more sales information than technical information, ascertaining this fact also helps you investigate who your advisor should be.
Don’t overemphasise credentials.
It seems as though there are many credentials available to financial advisors. Some credentials require significant levels of education, passing scores on examinations and adherence to strict codes of professional conduct. Many credentials, however, can be earned with virtually no effort or education at all. The bottom line is that the decision of what financial advisor to hire should be made based on more than just the letters after their names.
Speaking to our correspondent on how to choose a financial advisor, a banker, Adekunle Ogunleye, stated that it was advisable to seek advisors that hold appropriate certifications, such as Chartered Financial Analyst or Certified Financial Planner.
“When choosing a financial advisor, there are several important factors to consider to ensure you find the right fit for your financial needs. Here are some key things to keep in mind. Look for advisors with relevant credentials, such as Certified Financial Planner or Chartered Financial Analyst. Experience in the industry and a track record of success are also essential.
“Opt for advisors who are fiduciaries, meaning they are required to act in your best interest. This ensures they prioritize your financial well-being over their own. Consider the services the advisor provides. Some may focus on investment management, while others offer comprehensive financial planning, including retirement planning, tax strategies, and estate planning.”
A financial advisor, who simply identified himself as Adeniyi, noted that selecting a counsellor whose communication style works best for you regardless of how often you would like to meet, talk over the phone, or send emails, helps keep a client updated on their financial status.
“Understand how the advisor is compensated. Some charge a percentage of assets under management, while others may charge a flat fee or hourly rate. Make sure you are comfortable with the fee structure and that it aligns with your financial goals.
“Choose an advisor with a communication style that suits you. Whether you prefer regular meetings, phone calls, or emails, make sure the advisor is responsive and keeps you informed about your financial situation. Research the advisor’s reputation by checking online reviews, asking for referrals from friends or family, and verifying their credentials with regulatory bodies,” he suggested.
He noted that for the client-financial advisor relationship to be successful, the client must have a strong rapport and communicate clearly.
“It is crucial to feel comfortable with your advisor and trust their advice. A good rapport and clear communication are key to a successful financial advisor-client relationship. By considering these factors, you can select a financial advisor who not only meets your financial needs but also helps you achieve your financial goals,” Adeniyi added.
Consider cost
Inquire how your advisor is compensated. Most fiduciary advisors charge fees based on the percentage of your assets under management or by hourly rates. Your fee structure may also be based on the type of services provided. Under certain circumstances, a commission-based fee structure may be ideal. In addition, inquire what your all-in costs will be. This cost may fluctuate depending on the level of assistance, account size, and applicable taxes. It is important to keep in mind that some advisors have a minimum investment amount.
Ask for a meeting
Arrange either an in-person or video meeting to assess your rapport with the advisor and—more importantly to probe deeper. Ask questions to understand an advisor’s service model, fees, and investment approach. For example: What would be the first step if I signed on? How often do you meet with clients to update their plans and address portfolio needs? Are you a fiduciary? If I have a question, can I reach you directly? How will you determine my portfolio allocation? Do you invest in individual stocks or mutual funds and ETFs? How much attention do you pay to minimising taxes?
Hiring a financial advisor
Once you have picked out an advisor, it is time to hire them.
Each financial advisor or firm operates differently, but your experience hiring a financial advisor will most likely include these steps:
Contact the advisor
Contact the advisor or firm you would like to work with. Many firms have a calendar link on their website to schedule an initial consultation call.
Research
Gather some basic information before your consultation call. If you have a partner, sit down with them to determine your short-term and long-term financial goals. You don’t have to know everything you need, but a good idea of your goals will help your advisor know if they’re a good fit for you.
Be prepared
During the consultation, your advisor will ask you some basic questions. A great advisor will focus on more than just numbers; the type of lifestyle you’re looking for and how you can use money to achieve that lifestyle. Come to this consultation with your questions and make sure that you leave the conversation knowing how your advisor is paid.
Go through contracts properly
After your initial contact with your advisor, they will send you a contract and legal documents to sign. These usually outline the scope of their practice, their fee schedule and rights and responsibilities.
Furnish your adviser with information
Your advisor will send you a spreadsheet, google form, or link to software to complete with your financial information.
Follow up
After you have submitted your information, you will have follow-up conversations with your financial advisor. If you’re paying an hourly rate or retainer, this is usually due in part or in full before any follow-up conversations occur.
