You may be feeling uncertain about your finances and beginning to think you could use some help from a financial advisor, or you may be currently working with a financial advisor but you are feeling ignored or unhappy with the services you receive. In honor of Financial Planning Month, which admittedly is not a well known or popular thing, it will be helpful to shed some light on how to find and select a financial planner or financial advisor who is the best fit for you.
Areas of Financial Planning
Financial planning is a multi-step process which identifies where a person is currently with their finances, what their goals are over the short term and the longer term, and the steps needed to reach those goals. It is a highly individualized process which looks at all aspects of the person’s financial life, including risk management, cash flow and budgeting, estate planning, taxes, and investments. However, the degree to which the financial advisor will go into any one of the areas of financial planning varies considerably between advisors. Some advisors will focus on specific topics within financial planning, such as investments, and not touch on the other areas at all. A comprehensive review of all the topics in financial planning is beneficial so that the client is aware of any gaps in their current situation which may cause unexpected problems, or is aware of opportunities the client can take advantage of to increase their overall financial well being.
Types of Financial Advisors to Select
The term financial advisor has been used and misused in so many ways over the years that there is understandably a great deal of confusion over what the term means. It makes it even more difficult to select a financial advisor who is best for you and your needs. If someone says they are a financial advisor it is similar to someone saying they are a doctor in that the label doesn’t really tell you what the person does for work. A doctor could mean anything from someone has a PhD in Economics to someone who is an Orthopedic Surgeon. Similarly, financial advisors can have very different education, training and areas of expertise but they both can still use the title financial advisor.
Most financial advisors who work with individuals to help them with their personal finances fall into two main categories. They are either investment managers or financial planners. Investment managers typically focus on managing their clients investments and will charge fees based on a percentage of the assets they manage for the client or receive commissions for products sold. A financial planner will typically take a more comprehensive look at the client’s total financial picture and make recommendations on how the client can improve their financial outlook in any of the areas within financial planning. Financial planners will use various fee structures depending on how their business is set up. They may use a percentage of assets managed to cover all the costs associated with developing and implementing a financial plan, they may receive commisions for products sold, they may charge a set fee for their services, or they may have a combination of these fee structures. It is important to understand what services are most important to you and if that matches up with the advisor’s area of expertise when you select a financial advisor.
How Financial Advisors Get Paid
There are three labels given to financial advisors based on how they receive their income. They are commission, fee-based and fee-only. Commissions are earned based on products the advisors sells to the clients. Fee-only advisors do not receive any commissions at all and are only compensated directly by the client. Fee-based advisors are a combination of both. At times a fee-based advisor will earn commissions for selling products and other times they will be paid directly by the client for services and this can all occur when working with the same client. It is important to understand how your advisor is compensated so that you are aware of any conflicts of interest the advisor may have in making a recommendation. Fiduciary advisors are required to disclose any conflicts of interest, but it is an area which can be subject to interpretation. When hiring a financial advisor, it is very important to ask and understand how your advisor is compensated and when they are required to act as a fiduciary and when they are not.
Where to Find and Select a Financial Advisor
Finding and selecting a financial advisor who is a good fit for you can seem overwhelming and confusing, but a Google search can whittle down the possibilities. To select a financial advisor, You can look up an advisor’s record on Broker where you can find a great deal of information about the firm and the advisor, including a breakdown of the firm’s services and fees. Check to see if the broker has had any problems in the past. You can also look up the advisor company’s information adt Securities and Exchange.
If you would like to hire a fee-only advisor, NAPFA is a member organization for fee-only adviors which has a search tool. If you’d like to hire a financial planner with a tax-focus to their practice, Alliance of Comprehensive Planners is a member organization which has a search tool. Many financial planners who charge a service fee instead of charging base on assets under management, which is an especially good option for clients who do not have significant investable assets but still need the services of a financial planner, are members of XY Planning Network. If you do a general Google search to find a financial advisor near you or receive a recommendation from someone, it’s best to review their firm on the Securities and Exchange website to get an understanding of the types of services they provide and if it’s a good fit for you.
As always, if you would like more information on how to select a finanical advisor, please contact me.
Disclaimer: This article is provided for general information and illustrations purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult with a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Tricia Rosen, and all rights are reserved. Read the full disclaimer.