6 Tips for Finding a Trustworthy Financial Advisor
Money Girl details 6 ways to find the best financial advisor for your situation and budget. Plus, she offers an assessment tool that makes it easy to rate and compare advisors, so you can pick the best one for your needs.
One of the fastest ways to improve your financial life is to work with a financial advisor or retirement planner. They provide a variety of services, but are commonly used to help pick investments and create a clear plan for achieving long-term goals, like saving for retirement.
While this sounds terrific, it can be surprisingly difficult to find a good advisor. How do you know where to go, or if you should trust someone’s advice to begin with?
In this episode, I’ll tell you where to find the best financial advisor for your situation and budget. You can also download a free assessment tool that gives you an easy way to compare and rate advisors, so you know which one is a good fit for you.
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If you value your money as much as I do, choosing a financial advisor should be a deliberate, thoughtful decision. After all, you’re going to partner with someone or an investment firm to achieve goals that are critical for your financial future and happiness.
Getting a personal recommendation is a good start. However, just because you know someone who is happy with his or her advisor doesn’t mean that he or she is right for you. So here are 6 things to consider when looking for a trustworthy advisor:
Step #1: Evaluate Your Needs
Before you begin your search for a financial advisor, be clear about what you’re actually trying to accomplish with your money. In other words, be prepared to articulate the problem you need him or her to solve for you.
Here are some examples:
- I want to retire by age 60 and maintain my current lifestyle.
- I just had a significant life event or income change that I need help managing.
- I want to put my child through a college that will probably cost $50,000 per year.
- I want to make sure that my investments are allocated correctly in order to achieve my financial goals.
- I want to pay off certain debts while still saving enough for a comfortable retirement.
If you have fairly simple goals, you’ll be a good match for many potential advisors. But if your financial situation is complex due to factors like having a high net worth, being a business owner, or having offshore accounts, you should look for an advisor with the appropriate expertise.
Resource: Financial Advisor Assessment Tool (PDF) free download
Step #2: Consider Your Attitudes
Not all advisors have the same investing philosophy, so it’s important that he or she can explain their investing style to you, and that you’re in alignment with it.
The second step in finding the right advisor is to be mindful of your investment attitudes. Are you extremely conservative and feel uncomfortable taking any financial risk? Or does swinging for the fences, with the possibility of taking some losses along the way in order to make higher returns, seem natural to you?
Knowing your investing style can help eliminate the wrong advisers. Some prefer active investing, which is more aggressive and aims to beat average market returns in the short term. Other advisors believe in passive investing, which aims to mimic the market over the long term, by owning a highly diversified portfolio.
The bottom line is that not all advisors have the same investing philosophy – so it’s important that he or she can explain their investing style to you, and that you’re in alignment with it.
Step #3: Request Proposals
Once you know what you want to achieve with your money, and how you feel about investing, it’s time to reach out to potential advisors.
Using a site like Wealthminder makes it incredibly easy to submit requests online and get free proposals from multiple advisors. According to its founder and CEO, Rich Ellinger, they:
- Give prices as a flat fee with no hidden costs
- Check the qualifications of every professional in their network
- Guarantee satisfaction with every professional, or your money back
- Work with fiduciary advisors only, which means they are professionals with a legal obligation to put your best interests first
You can also find fee-only advisors in your area by visiting the National Association of Personal Financial Advisors at NAPFA.org, or the Certified Financial Planner Board at CFP.net.
See also: Tips to Find the Right Financial Advisor
Step #4: Evaluate Proposals
Once you connect with a potential advisor, remember that looks can be deceiving. Factors like whether an advisor is old or young, or works independently or is part of a big firm don’t tell you if he or she is competent.
Unlike other professions that require a degree, financial advisors don’t have to earn one. So look for designations such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), and Chartered Financial Consultant (ChFC).
If you need tax or estate advice, consider using a Certified Public Accountant (CPA), tax accountant, or an estate attorney.
Step #5: Interview Candidates
No matter what kind of advisor you need, I recommend that you interview at least 3 before hiring one. If you’re married, or have a partner who shares your financial goals, make sure you both participate.
You might arrange to meet in person, talk on the phone, have a Skype video call, or do a Google Hangout. There’s no rule that you have to work with an advisor in your area. I live in California and work remotely with an investment manager and CPA who are both located in Florida.
Be ready to lead the conversation with questions that get him or her talking openly about themselves, their current clients, and how they prefer to work.
For 10 essential questions you must ask before hiring an advisor, download my free Financial Advisor Assessment Tool (PDF). It’s a one-page form that gives you an easy way to rate and compare advisors at a glance.
Step #6: Set Up Your First Meeting
After you choose an advisor, find out what documents you should have on hand during your first meeting, or send to the advisor in advance. For instance, some may ask to review your tax returns, investment statements, or pay stubs. Set up a meeting date that gives you plenty of time to prepare.
If you’re married or in a serious relationship, make sure you can both attend the meeting. Be ready to answer questions about your ongoing expenses, current investments, and financial goals. If you don’t know all the answers, that’s okay – it’s part of the process!
Take notes during the meeting and never be afraid to ask questions, no matter how silly or elementary you think they might be.
Using a financial advisor to achieve your goals can save you time, help you make more money, and keep you disciplined about following a sound investment strategy.
See also: How to Find the Best Financial Advisor or Retirement Expert
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About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.
