By: Joseph Hanson, JD EA
Selecting the right financial advisor can be a daunting task. With so many so called “financial advisors” out there where do you even start.
I think there are 3 factors you should look for when selecting a financial advisor.
1.) How is your advisor paid?
Have they disclosed to you how much they are paid for their “financial advice?” If it is not clear and in writing how your advisor is paid you need to look elsewhere. Your advisors fees should be disclosed up front.
Is the advisor paid a commission based on the products that they “sell” you? If so, they are not giving advice, but rather “selling” a product, and you need to keep looking.
You want to work with an advisor that charges a flat fee for managing your assets and doesn’t take a commission on the stocks or bonds they trade in and out of your portfolio.
2.) What kind of credentials does your advisor have?
You want to work with an advisor that has credentials. Too many “advisors” don’t have the knowledge or the skill to be advising. But sometimes it can seem like just an alphabet soup of letters behind many advisor’s names. Do they actually mean anything? It seems like daily I come across new letters behind advisor’s names that I have to go look up what they stand for and who the organization is that is awarding these designations. Here is a list of some of the most recognizable and relevant designations for financial advisors and planners:
CFP – Certified Financial Planner
CFA – Chartered Financial Analyst (Experts at portfolio design and management)
CPA – Certified Public Accountant (Great at financial reporting, analysis and sometimes taxes)
EA – Enrolled Agent (Tax experts, this credential is awarded by the IRS, requires passing 3 exams)
JD – Juris Doctor – (Legal expert, Attorney if they have passed their state bar exam – not exactly a credential, but a powerful asset for an advisor to have).
3.) Is the advisor a good fit for you?
Every advisor, whether they know it or not, has a niche. You want to make sure that you fit their firm’s profile. For example: If you are a young business owner, but the advisor you are visiting with mainly works with retirees who have 401(k)s that advisor is not going to serve you well. You are too far out of their comfort zone. They would need to learn a whole new skill set to services you well.
Beyond fitting their niche, do you get along with the advisor? Do you have a good report? Are you going to want to meet with this person regularly? Do you trust them and feel comfortable sharing intimate details of your life? If you answered no to any of those questions the advisor isn’t a good fit and you need to keep looking.
Those 3 things are just a starting point to finding the right advisor. Here are 7 questions you should ask each financial advisor you meet with to find the right advisor for you!