Questions to Ask When Hiring a Financial Advisor

Planning for retirement and investing wisely are goals most of us have, but where do you begin? Hiring a financial advisor is a smart first step. They’re trained to educate you and help you make the right decisions for your situation. But finding one you can trust isn’t necessarily easy. Before you sign on the dotted line, consider these important questions:

Financial Advisor

Who are They?

How did you hear about this financial advisor? Were you referred by someone you respect? Be wary of turning your funds over to someone you connected with through an Internet ad or telemarketing.

What’s Their Story?

Research your potential financial advisor on the Internet and LinkedIn. Where did they go to college? What’s their professional experience? Do you know any of their clients? Are they satisfied? How do they describe their services? Are they conservative, or are they promising astronomical results?

What About Credentials and Designations?

It’s important to know that there aren’t really any regulations on the use of the title, “financial advisor.” However, professional designations indicate a certain level of education and training. Depending on what services you need, you might search for a:

  • Certified Financial Planner (CFP) - This designation signifies that an advisor has a four-year financial-related degree, passed an intensive examination, and meets board requirements for both experience and ethics.
  • Certified Investment Management Analyst (CIMA) - Requirements include three years of financial services experience, specialized coursework, an exam, and satisfactory record of ethical conduct.
  • Certified Public Accountant (CPA) - To obtain this certification for accounting and taxes, a candidate must pass a rigorous exam, meet work experience requirements, and obtain continuing education.
  • Chartered Life Underwriter (CLU) - This designation indicates expertise in insurance planning for business and estate planning.

How Do They Get Paid?

Compensation is a key distinction because how a financial advisor is paid can influence how they guide you. There are two types of compensation:

  • Fee-Based - Fee-based, or fee-only, means they charge a percentage, fixed, flat, or hourly rate. A percentage of the amount of money you would be placing under management is a good example. They would not be compensated based on which product they sell, meaning there wouldn’t be an incentive to steer you toward a certain investment vehicle.
  • Commission-Based - Commission-based financial advisors make money based on what they sell, like an annuity or life insurance. So, it might be in their financial interest to recommend a certain type of investment because they make more money on it.

What is Their Fiduciary Responsibility?

Fiduciary is a big word, and it’s one you need to know. If a financial advisor is a fiduciary on all managed accounts, it means they’re guarding your funds. They are obligated ethically and legally to put client interests ahead of their own personal interests, and even their employers. They have to put your interests first, always, and they must be transparent about any conflicts of interest.

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