Financial Educators. Financial Advisors.

5 Things to Consider When Looking for a Financial Advisor

August 24, 2020

There are only two things certain in life — death and taxes. And with the fallout of COVID-19 still being felt, this has never been more true. The Federal Reserve Bank has called the current economic outlook “uncertain,” but that doesn’t mean your future has to be. Whether you’re approaching retirement or simply trying to grow your wealth, a qualified financial advisor can help you prepare.

Unfortunately, choosing the right financial advisor can often feel like a shot in the dark. Handing over control of your money requires the highest degree of trust, and you want to feel confident in the firm you choose.

Here are five questions to ask yourself that can help narrow down your search:

1. What type of financial advisor are you looking for?

Often people will embark on this search without knowing what they’re looking for. CFP? CFA? AFC? The acronyms alone can make your head spin!

There are many different certifications for financial professionals, but no amount of letters after a person’s name can tell you whether he or she will meet your needs. Often it’s more helpful to narrow your search based on what you want help with.

Are you thinking about saving for your children’s college, planning for retirement, or creating an estate plan? It’s always a good idea to start your search there. Financial advisors who specialize in your particular needs will know the best investments for your situation and may offer financial planning classes that could benefit you.

If you’re looking for a financial advisor who can fulfill a variety of needs over time, ask yourself whether you’re looking for a general wealth manager or an asset management specialist. The key difference is that a wealth manager will take a bird’s-eye view of their clients’ financial situation to help them maximize and protect their wealth. This can include advising them on insurance and accounting matters as well as financial planning. An asset management specialist is focused on helping their clients create the right portfolio of assets and securities to grow their money over time.

2. What is your net worth, and how will your financial advisor be compensated?

While there are plenty of financial advisors who will take on clients with any amount of money, others will have specific net worth or minimum investment requirements. If you have assets that total in the hundreds of thousands or millions, you may want to consider hiring a financial advisor who specializes in high-net-worth clients.

Another consideration is how your financial advisor will be compensated. Some advisors work on client fees — either a fixed fee, hourly, or a fee based on assets under management. Others are paid through commission or a combination of fees and commission.

Advisors who are only paid through commissions can be appealing to those who don’t have a lot to spend, but there is a greater potential for conflicts of interest when commissions are involved. You want a financial advisor who is always acting in your best interest.

3. What is your level of financial knowledge?

If you’ve ever felt intimidated at the prospect of seeking financial advise, you’re not alone. Seventy-one percent of Americans say that some aspect of talking to a financial advisor scares them. While cost is one reason people are wary, a lack of financial education can also be anxiety-producing.

If you don’t know as much as you’d like to know about planning for retirement or general finance, consider a firm that offers financial planning classes. Today, many companies offer in-person and online classes related to retirement planning, estate planning, and personal finance. These classes can be an invaluable way to learn about the benefits and drawbacks of different types of investments.

4. Do you prefer a hands-on or hands-off approach to managing your money?

While some people are diligent about checking their 401(k) balances every month, other people would prefer to create a plan with a qualified financial advisor and let him or her take care of the details.

Before you sign on with a firm, take the time to consider how involved you want to be. Are you comfortable handing your money over to a professional and checking in once a year? Or would you like the flexibility to make changes to your portfolio without picking up the phone to call your advisor?

No matter what level of involvement you prefer, make sure the financial advisor you choose offers clear and transparent performance reporting. Ask how you’ll receive updates and when. Will you receive a monthly statement in the mail? Can you expect a quarterly update over the phone or an annual sit-down? The firm that’s right for you will be able to accommodate your preferences.

5. Do you want a firm that’s all buttoned up or more laid-back?

Many people decide upfront what type of financial advisor they want, but few ever stop to consider the overall atmosphere of the firm. The company culture and the people who work at a firm can make or break your experience, so it’s important to weigh this in your decision.

If you prefer a more traditional firm where advisors come to work in a suit and tie, a big-name company might be right for you. If you’re more comfortable in a laid-back atmosphere and want a financial advisor who will treat you like family, check out smaller regional firms in your area. A good rule of thumb is that if you don’t feel comfortable and well-taken care of from the time you walk through the door, you should continue your search elsewhere.

Choosing the right financial advisor can feel like a gamble, but it doesn’t have to be. Start by considering your unique financial needs, and look for a firm that can accommodate them. The ideal firm is out there somewhere, and you are their ideal client.

To start growing your financial knowledge, sign up for a class at Arapaho Asset Management.