Shopping for a financial advisor isn’t like shopping for a pair of shoes or a new car. If you try on the shoes and they don’t fit, you can ask for the next size up or down. If you test drive the car and don’t like it, you can return to the dealership and look at a different vehicle.
There’s no charge for trying on shoes or test driving a car, which reduces a bit of the pressure when it comes to buying. You’d be making some pretty careful calculations if you weren’t able to drive the car before purchasing it, wouldn’t you?
Unfortunately, there’s no test drive option available when it comes to selecting a financial advisor. You can’t hand over a bag of Monopoly money to an advisor and see how they do in a year. Entrusting your financial future to someone is an important decision and too much trial and error could result in a permanent loss of capital.
Making an informed decision is a must because if you hire the right person off the bat, your financial future will become much more clear. Here are a few things to keep in mind when looking to hire the right financial advisor to manage your financial future.
Why Hire a Financial Advisor?
Who needs a financial advisor anyway? Well, pretty much everyone. Navigating life with a financial advisor means that emotional decision-making can be removed from the equation when it comes to money.
Let’s face it, money can make us irrational and having a trusted advisor to keep us on course can prevent some foolish decisions. You should hire a financial professional when considering any of the following:
–Life Events: Are you planning a wedding? How about preparing for the birth of a child or saving for that child’s college education? Major life events can often trigger a change in how you manage your money, but far too many people are unprepared for that change when it occurs. A financial advisor can prepare you for these life-changing events AND help you navigate the difficult parts when they do happen.
–Time and Mental Stress: Preparing our financial futures is a stressful and time-consuming endeavor. For most of us, there are barely enough hours in a day as is. Where can we find time to assemble a financial plan when work, family, and other priorities come first?
You can’t add more hours to the day, but you can delegate some of that stressful work to a financial advisor. No need to quadruple-task – let your advisor build your roadmap.
–Large Windfalls: Perhaps you received an inheritance or hit the jackpot on a few early investments. Now you have a large windfall and aren’t sure the best way to deploy your new capital. A financial advisor can direct you toward investments and savings vehicles that match your goals and risk profile.
–Taxes, Retirement and Estate Planning: Perhaps the most important role an advisor can play is preparing clients for taxes and retirement and assisting with estate planning. Minimizing taxes and maximizing retirement nest eggs allows us to fully enjoy our golden years without worrying about running out of money. Careful tax prep is crucial for those on fixed incomes who can’t afford to overpay Uncle Sam.
What Do I Look For in a Financial Advisor?
How do you select the right financial advisor? Credentials and payment structure are two of the clues to keep an eye on. How an advisor earns their paycheck and their experience and education background will tell you what type of advisor you’re getting.
A fiduciary advisor is a term to look for because a fiduciary is held to a rigid ethical standard. A fiduciary advisor can only make recommendations in the best interest of their clients, which rules out conflicts like commissions and bonuses. A non-fiduciary advisor must meet a suitability standard, which states that recommendations must suit the client’s profile, but don’t necessarily have to be the best possible choices.
Fiduciary advisors are usually fee-only, which means they earn their income without commission-based products. Fee-only could mean charging a percentage of assets under management, by the hour, or by the service provided. Non-fiduciary advisors usually work for a combination of fees and commission. A fee-only advisor held to a fiduciary standard will be your best bet for a truthful and honest debate about your best financial moves.
Understanding Financial Advisor Credentials
Fiduciaries are not a single class of advisor. In fact, many credentialed advisors lay claim as a fiduciary, but that doesn’t mean they all have the same area of expertise. An advisor’s credentials will tell you more about their background and areas of expertise. Here are three of the most common fiduciary designations:
- CERTIFIED FINANCIAL PLANNER™ (CFP®) – CFP®s are holistic financial advisors who specialize in individual and family plans. A CFP needs to log thousands of hours of work experience while also completing a rigorous education and exam requirement. CFPs construct overarching financial plans for clients and have expertise in a number of areas like taxes, insurance, investments, and retirement planning.
- Certified Public Accountant (CPA) – CPAs are also fiduciary advisors that have met extensive educational and experience requirements. A CPA can work with both individual and business clients in order to keep them on the right side of the law for accounting purposes. CPAs are experts in taxes, bookkeeping, and other types of financial accounting.
- Chartered Financial Analyst (CFA) – CFAs have one major specialty, but it’s an important one: asset management. CFAs are experts in investing on behalf of individual or institutional clients. Portfolio construction is a huge part of the job for any CFA, who often work with clients who simply want a fiduciary professional to buy and sell securities for them. CFAs don’t necessarily create all-encompassing financial plans like a CFP, but they do have unparalleled experience in handling large investment portfolios.
Other designations do exist, but mainly as offshoots of these three credentials. Now that you have what you need to make an informed decision when choosing a financial advisor, consider your own financial goals. Do you need specific investment advice?
Are you behind the 8-ball on retirement planning? Factor your wants and needs into your thought process and pick an advisor who will help you meet them.
Certified Financial Planners™ at Advanced Retirement Strategies
Working with a Certified Financial Planner™ is an excellent investment of your time and money. With the high standards for CFP® certification, you’ll know you’re getting the expertise and knowledge of a highly-trained and educated professional who will always act in your best interests and with the loftiest ethical standards.
The team of retirement planners and investment advisors at Advanced Retirement Strategies in Bountiful, Utah includes two Certified Financial Planners™ who specialize in helping diligent savers with $250,000 or more of investment and retirement assets (not counting your primary residence) prepare for and then transition into retirement.
If you’re looking for a CFP® to help you live the retirement you have dreamed of, contact us today.