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How to Find & Choose a Financial Advisor – 10 Questions to Ask Yourself First

By Scott Powers

financial advisor coupleMaybe you just got a healthy inheritance from your late grandmother and her estate planning efforts, or maybe you’re overwhelmed with student loans, a mortgage, and credit card debt and aren’t sure where to begin to dig your way out.

Whatever your financial situation, when dealing with money most everyone thinks at some time or another, “I wish I had someone to help me figure all this out.”

That’s where financial advisors come in. But how do you pick the right one? Well, that can be a little trickier.

Here are 10 questions to ask yourself when you’re considering hiring a financial advisor.

1. What type of advice am I looking for?
For some, it is a comprehensive plan, while for others it could just be looking at a piece of their financial picture. Knowing your needs before walking in the door will help you best evaluate if the financial professional is the right person for you. Sometimes all their talking and schmoozing can confuse you and make you unsure of what you’re actually looking for or even need. Be prepared!

2. Do I pay fees or commissions?
The most common ways of compensation for financial professionals are through a flat fee, an hourly fee, a fee based on assets, or through commissions on investment products. There is no right or wrong in this arena, though some would argue otherwise, Just know what works best for you.

Paying a flat fee probably guarantees the most objective advice, though it could mean writing out a good size check. A fee on assets under management is a popular approach, as it gives both parties a vested interest on the account. The average fee runs between 1% and 1.5%. An hourly fee is a good option if you don’t need a full comprehensive plan, depending on the rate. Not everyone has the cash to pay an upfront fee or the assets to qualify for wrap-fee account, which is where using a commissioned advisor could work for some people. Of course the caveat here is that you are entering into a transactional relationship. Advisors do need a separate license to charge a fee for planning, so if that is the route you want to take then make sure the advisor you are talking to is set up to handle fees.

3. How much of a factor is age and experience?
I may be in the minority here but I don’t always see youth or limited experience as a negative aspect, maybe because I was only a few years out of college when I started my own career as a financial advisor and looked even younger. For me, I sold the point that I didn’t have a huge client base yet so I could service the heck out of my existing clientele. I was young, energetic, and my education was fresh and up to date so I used that to my advantage. Sometimes experience does make a difference though, especially if you feel your situation is fairly complex. You may not want to have someone fresh out of the gate handling your affairs.

The most important factor, above age and experience, is having the right fit. You need to trust the person across the table from you so you can give them the most accurate picture of not only your financial situation, but also what is most important to you in life. That needs to happen before they touch a dollar of your money. I know advisors who have years of experience and several designations after their name, yet I wouldn’t trust them to manage a nickel.

4. Do they have references?
As an advisor, I was always amazed by how few people asked for references, especially considering I could be managing their life savings. Ask for at least three references and try to get at least one that is in a similar situation as you. People are inherently honest and if you ask the right questions of those references you will get insightful answers. Try asking what has been great about their relationship with the advisor and also what could be improved.

5. Am I organized?
You will want to give the advisor a clear picture of your situation in the most efficient manner possible. I always asked people to bring in their statements (bank, investments, retirement plans, credit cards, and anything with a dollar sign in it), life insurance policies, an idea of their expenses, and any legal documents if they had them. If someone created their own spreadsheet at home instead of dragging everything in then that worked as well. The point is, having all your financial information well organized will help both you and your advisor get the best understanding of your unique situation.

6. Am I in a hurry?
Ideally you and your advisor are going to have a long term relationship. There should be no need to rush into any agreements after only one meeting. You also may want to interview a few candidates to get a feel for some different styles.

7. Can they communicate on my level?
A good advisor should be able to talk to your level of understanding, which is especially important if you’re a beginner. You don’t want to work with someone who is constantly talking over your head or worse, makes you feel bad for the things you don’t know.

8. Are they more concerned about being interested or being interesting?
Is there anything worse than sitting through a long sales pitch, or someone who is only interested in hearing the sound of their own voice? A good interview should be a pitch and catch. You should at least get the feeling that the advisor has a personal interest in your situation and be asking pertinent questions. Ultimately this is about you!

9. Do my friends have a financial advisor they’d recommend?
The best way to find an advisor is to ask the people you know and respect who they use. Your accountant or attorney could also be a good resource, just be sure to ask if they have financial stake in the referrals they give (this should be disclosed upfront).

10. Are they a small independent advisor or tied to a big company?
I started off with a larger firm and then went into practice for myself, so I think there are pros and cons to each. A larger firm is going to have more behind the scenes support and may have specialists to assist in certain areas of planning. This is especially true for companies like Northwestern Mutual, Ameriprise, or NY Life.

The downside is that they can be more expensive than some of the products and services offered by an independent advisor, and have different commission schedules on proprietary products. An independent advisor might be more flexible in their fee schedule and have access to a wider range of products, but have limited office support. None of these points are absolutes, but something to keep in mind.

Final Word

Choosing a financial advisor is a big life decision, but if you ask the right questions, you can find one that will successfully help you manage your money for the rest of your life.

What are some of the criteria that you look for in a financial advisor?

(photo credit: Shutterstock)

Scott Powers
Scott has been a licensed professional in securities and insurance since 1999. He started as an advisor with New England Financial before starting his own independent firm Powers Financial Group. After recently selling his practice, he left the cold winters of New England and moved his wife and two boys to sunny southern California. As well as financial consulting, Scott spends his time acting, coaching, staying fit and volunteering with Special Olympics.

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  • http://www.DrTimothyLawler.com Dr. Timothy Lawler

    Great article. People these days unfortunately just dive blindly into this situation of finances. I would also recommend having people educate themselves with a book or two about general finances too. This will give them some background and make them feel that much more confident when starting out on this journey of finding a financial advisor. Keep up the good stuff.

    • Scott Powers

      Thanks Dr. Lawler, that’s a great point! Having even a basic understanding of finances can help people avoid getting confused by some of the different financial instruments and terminology. It also enables people to ask better questions of their advisor. I appreciate you sharing your thoughts on here!

  • gerri

    Your article provides a concise outline that I need as I choose a financial advisor in preparation for my retirement. I will be interviewing candidates in the near future and now have a clearer direction as I make my decisions about the future. Thank you.

  • Scott Powers

    Gerri, I’m glad you found this useful and best wishes in your pending retirement! I hope you continue to use us as a resource.

  • http://thechicagofinancialplanner.com/ Roger Wohlner

    Excellent article. A couple of comments, as a fellow advisor I think checking client references is useless. Don’t get me wrong I will give them to a potential client at the point where I think they are serious about moving forward if they ask. But at the end of the day most advisors and other professionals are only going to give out the names of satisfied clients.

    I think your point #8 is vital. When talking with a prospective client I try to ensure they are doing 75% or more of the talking, its vital to me to understand their needs and to make sure that I am potentially the right advisor for their needs.

  • http://twitter.com/ChristsLadie Melodye

    Hi Scott! Are you available as a financial advisor? Future reference of course. :)

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