How to Choose a Financial Advisor

Finding the Right Financial Advisor: Key Questions to Ask

If you’re concerned about making good financial decisions and planning for the future, you might benefit from working with a financial advisor. But how do you know if you’ve found the right one? Here are three essential questions to ask a prospective advisor during your first conversation.

How Do You Get Paid?

When you work with an advisor, you’re trusting that person with a lot of personal information and important decisions, so it’s only natural to expect a great deal of transparency from the advisor. One aspect of that is about how they make money.

There are two primary types of payment arrangements in the industry: fee-only and commission based. Sometimes, an advisor may use a combination of both, known as a “hybrid” model.

• Fee-only financial advisors:

  Typically, these advisors charge a percentage of the assets they manage. For example, you may be charged 1% of your account balance per year. In many cases an investment advisor will include comprehensive financial planning services as part of this fee.
  Other advisors might charge an hourly or flat rate for their services. Your advisor might provide a financial plan in exchange for a flat dollar amount or a time-based fee. These arrangements are more common with advisors who focus exclusively on financial planning services as opposed to more comprehensive solutions.
  That said, some financial advisors may be fee-only for their investment and financial planning advice — but may also offer insurance services, where there are commissions earned. Don’t hesitate to ask your advisor about the way they’re compensated for different types of products.

• Commission-based advisors:

  These advisors earn money by selling specific products and may receive commissions from trading fees or sales of stocks, bonds, mutual funds, or insurance products.

What are your credentials?

While a great financial advisor doesn’t always have acronyms behind their name, it’s useful to have an understanding of your advisor’s credentials and public record in the industry.

A good starting point is Investment Adviser Public Disclosure (IAPD) system, managed by the U.S. Securities and Exchange Commission (SEC). This resource allows you to view multiple public records at once. If the advisor doesn’t have a history on IAPD, you may be redirected to BrokerCheck, a database maintained by the Financial Industry Regulatory Authority (FINRA) for securities-registered advisors.

In terms of credentials, there is an alphabet soup of certifications and acronyms in use in the financial services industry.

Among the many certifications in the financial services industry, here are two common certifications:

• Certified Financial Planner (CFP®):

  This certification requires candidates to complete seven courses and pass a 10-hour board examination. They must also have three years of professional experience in the financial industry and submit to a background check. Candidates must have at least an undergraduate degree in order to start the CFP® program.

• Chartered Financial Consultant (ChFC):

  This designation covers the same topics as the CFP® program plus two additional personal financial planning electives. This designation does not require a final board examination. Rather, candidates take a test after completing each course. The program doesn’t require a college degree, but candidates must have at least three years of professional experience in the financial services industry.

Both credentials require ongoing continuing education. Again, these aren’t the only two designations out there, and many strong advisors have credentials and experience outside of these programs.

Discussing your advisor’s education and experience is crucial to ensure they meet your needs.

Do you understand who I am and what I need?

This is more of an internal question for you: Do you feel that the advisor understands what’s important to you? Is the advisor going to do what’s necessary to help you succeed financially? Are they going to put your needs first? Is this someone you can trust?

You’re looking for an advisor who is curious about you and is willing to spend enough time to get to know more about you — before suggesting particular products or strategies. If you ever get the sense that the advisor is more interested in making money off of you as opposed to helping, you should run the other way!

Working with an advisor who you are comfortable with, who you can trust and who understands your unique circumstances is paramount.

Finding the right financial advisor

Start by understanding how the financial advisor is compensated. After all, there is no such thing as free advice — a transparent compensation structure is beneficial for both advisor and client. Understand the advisor’s credentials and how they align with your needs. Finally, look for an advisor who offers a free initial consultation. Use this opportunity to determine if they genuinely listen to you and prioritize your interests. Finding an advisor you trust and who understands your unique circumstances is paramount for effective financial planning.

Interested in learning more about how to make sure you’re financial picture is set up in your best interest? Check out this recent article about The Art of Tax Planning: Optimizing Your Investments for Lower Taxes.

Connect with OneDigital’s Wealth Management team to learn more.

Investment advice offered through OneDigital Investment Advisors LLC, an SEC-registered investment adviser and wholly-owned subsidiary of OneDigital. These materials are provided for informational and educational purposes only and do not constitute a recommendation to buy, sell, or hold any security, nor do they constitute legal, accounting, investment, or tax advice. The materials and the information provided are not designed or intended to be applicable to any person’s individual circumstances. These statements do not constitute an offer or solicitation in any jurisdiction. All included information and data are limited only to the inputs and other financial assumptions indicated.