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From helping you save for retirement to creating a comprehensive financial plan to guiding you through the divorce process, there are a wide variety of ways an advisor can help. Choosing the right one for your needs is vital.
To start, consider the complexity of your situation and how involved you want to be in your financial affairs. Then research professional credentials and certifications.
Qualifications
In order to be a financial advisor, candidates need to pass the necessary licensing exams. This includes the FINRA Series 7 Exam, and depending on the type of products and services they plan to sell, other exams specific to those products and services.
In addition, a financial advisor needs to have professional training and education. Look for someone who regularly attends seminars and maintains their professional licenses.
You also want an advisor who is knowledgeable about the different types of investments and financial products available. This includes retirement accounts such as 401(k)s, traditional and Roth IRAs, as well as mutual funds, stocks and bonds.
Some financial advisors work on commission while others charge a flat fee or hourly rate. Those who work on commission may earn sales and brokerage fees from third parties, which can present conflicts of interest. However, most advisors who are independent of a broker-dealer work on a fee-only basis, which eliminates the potential for conflicts of interest.
Fees
When you’re looking for a financial advisor, make sure you understand the fees associated with their services. A good financial advisor will be transparent about their rates, and will explain the scope of their services to you. Some advisors will charge an hourly rate, while others may charge a percentage of your assets or an annual fee. You should also be aware of any commission-based fees that might exist, as these can be a red flag.
Finally, you should look for an advisor who is willing to teach you about investing and finances. A great advisor will be able to explain the differences between a 401(k) and an IRA, and will help you choose the best investments for your situation. They should also be able to create and document an investment plan for you that outlines your long-term goals, short-term needs, risk tolerance, and personal values. This will serve as a guide for future decision-making and provide you with peace of mind that your financial future is in good hands.
Personality
Good financial advisors are patient and empathetic with their clients. They know how to communicate with people in a way that helps them feel comfortable sharing their feelings, which can be important when discussing sensitive topics like job loss or a divorce. They also don’t make you feel like an idiot for asking questions or expressing doubts.
They’re lifelong learners. Financial planning is a constantly evolving industry, and great advisors are always looking for ways to improve their skills. They take continuing education seriously and pursue advanced degrees and professional certifications to keep up with the latest trends.
While personality traits play a big role in any occupation, it’s particularly important in a career such as financial planning. One of the Big Five personality traits that predicts job performance is conscientiousness, which is associated with being dedicated and taking obligations seriously. These traits are critical for financial planners to have, as they’re entrusted with other people’s money and helping them achieve their goals.
Experience
A financial advisor who has years of experience can offer you a wealth of knowledge. They should also be familiar with your industry and how investment products work. They can help you navigate complex topics such as investing in a retirement plan and estate planning. A good advisor will have a client-first mentality and be able to explain investment options in detail so that you can understand them. They should be a teacher first and make sure that you leave their office feeling smarter than when you walked in.
In addition, new advisors should understand that while “selling” is a dirty word, marketing is necessary for them to build a book of business. Many advisors are captive at wirehouse firms like Merrill Lynch or Edward Jones and may be incentivized to push certain plans to meet quotas and earn bonuses. They can also earn commissions on sales of securities, insurance or mutual fund shares from third parties, which can create conflicts of interest.
