What Makes a Good Financial Advisor?

good financial advisorWho you invest your money with is just as important as how you invest your money.  That’s why it’s smart to find a good financial advisor who you trust and who understands your goals.  You don’t want to hand over your hard earned money to someone who’s just trying to sell you something so they can make a commission.

Whether you’re a young investor or have been putting money into the stock market for several years, you want a financial advisor who understands your needs, pays attention to your goals and takes the time to explain your investment options.  If you’re not getting that right now then maybe it’s time to make a change and seek professional advice elsewhere.

Four questions to ask to find a good financial advisor:

Do they listen to your goals?

The last thing you want from a financial advisor – especially if you’re paying for their service – is someone who gives the same blanket advice to all of their clients.  That’s not great customer service and it’s not good for your bottom line.  Advisors will have investments they prefer over others, but clients still have the right to tailored advice.

You want a financial advisor who listens to what you’re saying and builds a customized financial plan based on your personal time horizon and comfort level with risk.  Some firms charge for financial plans so be sure to inquire about pricing before asking for the work to be done.

How are they charged?

Financial advisors can be charged in a few different ways and a good financial advisor will disclose how they’re paid.  Very often you may be able to see the fee structure directly on their website or in the account opening documentation.

Fee only financial advisors are charged by the client per the work required.  This type of financial advisor prides themselves on being completely independent and unbiased as they are compensated directly by clients and not by mutual fund companies.  The compensation is usually as a percentage of your total invested holdings or a fixed rate for certain services such as creating a financial plan.

Then there are commission based financial advisors.  These advisors are paid directly by the mutual fund companies for selling their products.  It’s beneficial to clients because the fees for service don’t come out of your pocket, however you need to ask yourself if the advisor’s advice is biased based on the amount of commission they earn.

The third pay structure is for advisors who work aren’t independent but employed by a bank.  This type of financial advisor is paid a salary (and maybe a general sales bonus) by the institution.  Their advice should be unbiased as they make the same amount of money regardless of what they sell.  There are no fees to the client, but they are limited to the investment options they can recommend as they only have access to investments offered by the bank.

What is their area of expertise?

You want to find a good financial advisor who specializes in your lifecycle a.k.a. where you are in life.  If you’re self employed you need a financial advisor who can help manage cash flow and big purchases.  If you’re a young family you need a financial advisor who can help budget and pay off debt while saving for your kids’ education.  If you’re getting ready to retire, you don’t want an advisor who specializes in helping millennials buy their first home.   You want to find someone who’s a good match and that comes from checking out their background.

According to Forbes education and experience are key to finding a good financial advisor.  “The first thing you should do when evaluating a financial advisor is to check his or her regulatory record using (a background service such as) FINRA BrokerCheck. It can potentially save you from making a costly and often irreparable mistake.  The financial services industry is an opaque, sales-centered business in which financial advisors are hired, trained and retained based on their sales ability, not on their investment acumen or experience.”

Do you trust them?

It’s extremely important to trust your financial advisor.  After your first meeting ask yourself, would I buy a car from this financial advisor?  If the answer is no then maybe they’re not the right advisor for you.  Search online via LinkedIn for advisors in your area, ask friends and inquire at your local bank.  There is a good financial advisor out there for everyone, you just have to find them.


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