While finding the right fit takes time, it’s worthwhile to do your research and ask some difficult questions before engaging in any sort of relationship with an advisor.
To help you determine which one is best for you, here are four tips from experts on how to choose a financial advisor.
1. Know what financial services suit your needs
When it comes to finding a financial advisor, the first step is determining what services you need and how you will use an advisor.
For example, ask yourself if you need your financial management completely outsourced or prefer to maintain control over most of your investments.
You’ll also want to consider your budget and long-term goals as well as factors such as how much money you have to invest, your risk tolerance, individual tax situation, and investment time horizon (how long you hold an asset before selling).
Some advisors specialize in one specific area (e.g., retirement planning), while others are more generalists who can handle all aspects of financial planning.
Depending on where you are in life and what services you require, it’s essential to find someone with expertise in those areas who can offer knowledgeable advice that is useful to your situation.
2. Your financial advisor should prioritize your needs
Ask your friends and family members for recommendations. The best advisors go above and beyond to serve their clients, so ask around!
Your friends, neighbors, or relatives may be able to recommend the financial advisor they have entrusted with their own investments.
Also, find an advisor that puts your interests before their own. Many people think that a financial advisor should work for you, but there are many different types of advisors out there.
It’s important to find someone who works on commission. That is their fees are based on whether or not they are able to help you succeed in managing your money and achieving your goals.
This type of advisory relationship is known as a fiduciary relationship.
It generally means the financial advisor has sworn to always act in his or her client’s best interest at all costs, which doesn’t include any hidden charges like commissions.
Lastly, check how long the advisor has been in business. You want an advisor who knows what they’re doing when it comes to giving advice on investments and retirement planning.
So make sure they’ve been around for at least five years (which might seem short but is actually pretty good).
3. Learn about the different financial advisor options
A robo-advisor is an automated financial planning service that takes the guesswork out of choosing a financial advisor.
For example, it might be a free online platform where you upload your tax information and use a set of algorithms to determine whether you qualify for certain tax credits or are likely to pay more in taxes than you should.
It will then recommend the best investment products for your needs.
For online financial planning services and advisors, you can access online forums from which financial planners can offer their advice.
Although, many people find these less than ideal because they’re made up of anonymous individuals.
There are plenty of online “do it yourself” finance websites as well (and this is worth researching before deciding on an advisor), but most of them aren’t particularly trustworthy.
Lastly, traditional advisors have access to all kinds of workarounds such as mutual funds (a company gathering money to invest in assets) and ETFs (funds that trade using exchanges) that allow advisors to deliver customized advice while still keeping costs low enough to remain profitable.
If you’re considering a traditional advisor, look into whether he or she offers one or more ways to lower costs and fees, such as using automatic investing through portfolio management platforms like Betterment, Wealthfront, or Vanguard Personal Advisor Service.
4. Consider your budget for an advisor
If you’re not sure what financial advisors charge, let’s explore some of the more common methods of payment.
- Robo-advisors usually charge a yearly fee for managing your portfolio that is about 0.25% of your total assets managed (for example, 1% on 300,000 AED).
- Online financial planning services and advisors typically charge a fixed fee, a percentage of your assets, or both to set up a plan. There may be a minimum investment requirement as well.
- Traditional financial advisors, on the other hand, are more likely to receive compensation through commissions they earn from selling products and services to their clients like insurance plans or by directly charging their clients an advisory fee based on their assets under management.
Before you decide which type of advisor is right for you on your next payday, consider how much money you can comfortably spend on advisor fees without jeopardizing your family’s overall finances or lifestyle.
But overall, a financial advisor can significantly help you narrow down your choices and choose the best financial plan for your needs and lifestyle.
Whether investing in mutual funds or stocks, a financial advisor can help you be more knowledgeable of your choices before risking your money.