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What to Consider When Choosing a Financial Advisor

Written by prositesfinancialOct 30 • 4 minute read

financial advisor

Financial advisory plays a vital role in the success of any business. The best counsel can help you navigate through the process of creating long-term, sustainable wealth. A professional financial advisor will understand your unique financial needs and perform due diligence to determine how to address your goals.

Whether you’re interested in advice to plan your estate, protect your business against risks, or invest your savings, here are some essential things to consider.

What is a Financial Advisor?

A financial advisor is your fiscal planning partner. For example, if you want to retire in 30 years or send your child to a private university in 15 years, you need a skilled professional with the right licenses to help you accomplish your goals. The work of a financial advisor is to help turn your plans into reality.

You will work together with your financial advisor to tackle a variety of topics, including:

  • How much money you should save
  • Types of banking accounts you need
  • Necessary insurance policies (professional liability, long-life, term-life, disability)
  • Estate and tax planning

The first step in the financial advisory process is to understand your financial health. It’s almost impossible to properly plan for the future without first understanding where you stand today. Your financial advisor will ask you some preliminary questions to get to know your present status and plans.

Since you’ll be sharing so much with your financial advisor, it’s essential to do your homework and get the right one. Beware of misconduct; you want a partner to trust and mutually work with for several years to come. Here are some excellent ways to find the right person for you:

Look for a Fiduciary

The firm you are considering should put your interests first. While traditional brokers work to a “suitability” standard, a firm holding to a fiduciary standard will disclose and address potential conflicts of interest and act in your best interests.

This is a significant distinction, and if they say they are fiduciary, let them put it down in writing on company letterhead. It would be best to ask whether the firm is a Registered Investment Advisor (RIA). Typically, RIAs are registered under the Investment Advisors Act of 1940 and hold the highest fiduciary standards.

Choose a Specialist

Most financial advisors specialize in one or two areas and seek counsel from other advisors when questions arise outside their focus. For instance, a certified public accountant (CPA) might specialize in money management and tax planning, a chartered life underwriter (CLU) in insurance and annuities, and an attorney in estate planning. A financial advisor must have a certified financial planner (CFP) certification to be familiar with all financial advice areas.

However, it would be best not to preclude a financial advisor for lack of expertise unless it directly affects success in an area most important to you. For example, if your primary interest is in trading in stocks and bonds, you would probably opt for a registered representative of a stock brokerage firm or a registered investment advisor (RIA), not a CLU or CPA.

Before settling for a financial advisor, ask who they work with before describing your situation. Overall, look for one specializing in working with business owners, not professional athletes, elite doctors, or movie stars.

Do Some Research

The North American Securities Administrators Association and the Financial Industry Regulatory Authority (FINRA) regulate all registered representatives of stock brokerage firms and mutual funds salesmen.  Registered investment advisors are regulated by the Securities and Exchange Commission (SEC). In contrast, financial advisors such as lawyers, insurance agents, and accountants are regulated and licensed by governmental departments.

Before engaging a financial advisor’s services, confirm they hold a proper license (or licenses) that remains in effect with your state’s regulatory agency. Additionally, check to see whether the financial advisor has been subject to regulatory actions, lawsuits, or consumer complaints.

A simple background search on FINRA’s or SEC’s advisory investigation should show you if your financial advisor is appropriately registered. You can also locate their credentials on Barron’s Top 1200 to verify their registration status and rank by state.

Evaluate Their Personality

Beyond credentials and processes, you want to work with a financial advisor you feel safe and comfortable with. Do you feel comfortable opening up and being honest with the advisor? Do they take time to listen and understand your financial needs? Shifting from one financial advisor to another can be disruptive to your financial plan, so you should choose an advisor you feel confident working with long-term.

Schedule a face-to-face or virtual meeting and see if you feel the relationship is friendly and collaborative. Ask about their skill with advanced planning as they will need to proactively protect your assets, manage debt, plan for taxes, and many other things.

Look for a Team Leader

Before you sign up, be sure to get the details of who you’ll be working with and how often you’ll be meeting. Some advisors will arrange an initial upfront meeting to familiarize themselves with the client, set the ball rolling, and schedule an appointment once every year. However, others provide ongoing support throughout the year to help you implement the plan and coordinate with other service providers like mortgage brokers, accountants, and insurance agents.

Your financial planner should act as the team leader by collaborating other specialists you have, including attorneys or insurance specialists. Find someone with experience building a team, so there won’t be any holes in your strategy or missed opportunities.

Final Thoughts

Your financial situation is unique, so don’t settle for cookie-cutter treatment – you’re not a cog in a machine! Customize your wealth management experience by choosing the right financial advisor. If you have additional suggestions for finding a financial advisor, share in the comments below.

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