So you need help managing your investments or developing a financial plan for the future. You’re not alone. Like many people, you likely have responsibilities at work and home that are important to you. You don’t have time or the inclination to figure out your finances too.
That’s why financial advisers are ready, willing and able to help. They think about investments and manage financial plans every day for people just like you.
But hiring a financial adviser is much like hiring a doctor or a lawyer -- you want to have a good relationship with this person, because they will (hopefully) help you with an essential part of your life.
Where is it best to start when finding a financial adviser who will be right for you? From ValuePenguin research, here are some important areas to consider as you begin your search:
Titles and registrations
The first thing you may notice when looking for financial help is the wide range of job titles. They all seem to offer the same services, but there are some important differences to know, such as those between brokers and investment advisers.
Brokers generally buy and sell investments on your behalf. They can recommend investments, but those recommendations only have to meet a basic suitability standard.
Investment advisers provide advice on investments that’s more specific to your needs. Their advice has to meet a higher standard than the one that applies to brokers.
With both titles, individuals and firms must be registered either with the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). You only want to work with professionals who are registered with either one or both. FINRA’s BrokerCheck web tool is an easy way to look up a registration for an individual or a firm.
Not only are there many job titles to consider, there is also an alphabet soup of professional designations that many investment professionals include after their names. These designations often indicate expertise in a specific area or the successful passage of a certification exam to demonstrate a particular skill.
Be wary of individuals who have a laundry list of designations after their names. Many professionals go through courses and take exams just to put more letters on their business cards. Some certifications do require rigorous coursework and testing, but others are easier to meet. For example, a Registered Financial Consultant (RFC) doesn’t have to pass a specific exam -- a bachelor’s degree is business or other industry designation meets the minimum education and testing requirements.
FINRA also has a helpful acronym dictionary that decodes these designations and explains what financial professionals have to do to earn them.
Financial professionals work for a living, of course. Their salary comes in large part from the fees you pay them as a client.
If you work with a registered representative of a brokerage firm, you’ll pay commissions every time you buy or sell investments in your account. Broker commissions are based either on the number of shares bought or sold in each transaction or a flat fee for the entire transaction.
Investment advisers are paid based on a percentage of your account value. Usually these fees are presented as an annual percentage but charged to you quarterly. For example, an investment adviser may charge you a 1% annual fee for his or her services, but every three months an amount equal to 0.25% of your account value comes out of your account.
It’s not out of line to ask how the financial professional earns their income, considering their compensation comes out of your pocket either directly or indirectly. Many professionals also get paid by the companies that market investment products and services. An adviser may steer you toward a specific products to boost their paycheck, so you should be aware if these indirect payment arrangements exist -- they may pose a conflict of interest.
Not sure about paying a financial advisor? Consider a robo-adviser and its fees.
A financial adviser will often employ other people in his or her office to help in different ways. These jobs may seem like simple clerical duties, but some may require access to your financial or investment accounts.
You should learn more about the people behind the scenes, who help the financial adviser run his or her business. If someone on the support staff will be working with your personal or financial information, ask the adviser about their qualifications and what processes are in place to monitor their work.
Naturally, someone with more experience is likely to be more skilled in managing different financial situations. But the number of years under one’s belt isn’t always the best indicator of a good match -- you want someone with the right kind of experience.
Because your financial situation is unique to you. A financial professional who has worked with young investors or retirees or people from certain industries or occupations can bring valuable experience gained from helping others to help you in much the same way.
You can ask a financial adviser about their typical client, or what experience they have in working with someone in your shoes. The right kind of experience can be extremely valuable in helping you develop a plan for your particular needs.