Updated: Dec 1, 2022
Choosing a good advisor is key to your overall financial well-being. A study done by the investment firm, Vanguard, shows that working with a financial advisor can increase your investment returns by 3%. Russell Investments puts it closer to 3.75%
But what makes for a good advisor? Whether you’re looking for an advisor or have already been working with one for ten years, here are some questions to ask yourself when choosing a financial advisor:
Is The Advisor A Good Listener?
There is more to an advisor than superior returns. Is your advisor an effective listener? Do you feel heard and understood when talking to your advisor? Does she know what truly matters to you? Or is she more interested in selling to you?
Women report that their advisors would often address their husbands during meetings while completely ignoring them. Does that happen to you?
How Is She Compensated?
Most advisors receive compensation, not from the advice they provide but from the products they sell.
Compensation may come in the form of commissions or a fee. This commission is not a flat rate but varies according to what you purchase.
Generally, an advisor is paid a higher commission for selling stocks than for selling term deposits.
Insurance advisors are paid a higher commission on universal life than on term life insurance.
Advisors that are fee-based, charge according to a percentage of the value of the assets they are managing for you.
Is She Objective?
Do you notice your advisor persuading you to purchase something that may not be aligned with what you need? Her advice may or may not be objective. It may or may not be influenced by how she is compensated.
Does She Have a Fiduciary Duty?
One of the most important things to look for when hiring a financial advisor is whether or not the advisor has a fiduciary duty to their clients. In other words, is the advisor working in your best interest when she makes recommendations? Not all advisors have a fiduciary duty to their clients. Make sure yours does.
What Is Her Licensing?
The financial industry is complex. Different bodies govern different areas within the industry. Not all advisors are accredited equally. What are your financial concerns? If you need life or disability insurance you would want to work with a financial advisor accredited to provide insurance advice.
This is different from an advisor licensed to provide investment advice. Maybe, you want an advisor to help you plan for retirement? This may encompass debt structuring and portfolio management. Your indivudal goals will determine the breath of advise you will require. This will detetermine the kind of financial advisor you need. Ensure that your advisor is licensed in the state you live in. And is acreditted in the financial area in which you need advise.
Part of Your Financial Plan
Choosing a good advisor that you can trust is a crucial part of a successful financial plan. Get to know your advisor. That starts the minute you walk into their office. Listen to your gut. Before hiring one, do some background checks.
If you hire a Certified Financial Planner, her name should be listed with the Financial Planning Standards Council (FPSC). You can look this up on the internet. There is no shortage of stories of advisors who have betrayed their clients’ trust.
Most advisors adhere to a very high standard of ethics. But there are no guarantees that the advisor sitting across from you has your best interest at heart.
Whether you’re just beginning your financial life or heading towards retirement, this book will show you how to:
• Get out of debt and develop savings
• Save money through mindfulness and good habits, rather than strict budgeting
• Declutter your life and live well for less
• Invest your savings and begin creating wealth
• Save the planet while saving money
• …and so much more!
Based on extensive research and one-on-one interviews with more than 50 of the most legendary financial experts in the world - from Carl Icahn and Warren Buffett, to Ray Dalio and Steve Forbes - Tony Robbins has created a simple seven-step blueprint that anyone can use for financial freedom.
This article contains affiliate links. I may receive a commission for products sold through these (at no additional cost to you)