When it comes to financial literacy, how confident are you?
If you’re like most Americans, you probably don’t feel super confident, especially when it comes to more complicated issues like applying for loans or investing in the stock market.
If you would like to become more financially savvy, you could spend hours scouring online articles filled with conflicting advice. Or, you could save yourself some time and hire a financial advisor.
Never heard of a financial advisor? Not sure what they do or how to hire one?
Read on to learn more about financial advisors and how to find a good financial advisor.
What Is a Financial Advisor?
As their title suggests, a financial advisor is someone who offers advice on financial matters.
They might offer money management tips to folks who are struggling with debt or trying to save for a particular goal, or they might offer advice on investments and retirement savings.
Financial advisors also provide education and teach you the best way to handle your own money and make it work for you.
Benefits of Hiring a Financial Advisor
There are lots of reasons to consider hiring a financial advisor, including the following:
- Gain important knowledge on money management and long-term financial planning
- Stay accountable with your spending and investing
- Ensure your children and/or spouse are taken care of after you pass on
- Gain an objective perspective on your business and financial ideas
- Gain financial freedom and stop stressing about money
- Make sure you have plenty of money set aside for the future
Clearly, there are lots of reasons to consider hiring a financial advisor. But, how do you make sure you’re hiring the right one?
How to Find a Good Financial Advisor
These tips can help you sift through all the financial advisors out there and find the right one for you.
1. Choose Between an RIA and an IAR
There are tons of different types of financial advisors out there, and they’re definitely not all created equal.
To ensure you’re working with a reliable, credible individual, choose between an RIA and an IAR.
An RIA is a Registered Investment Advisor. An IAR is an Investment Advisor Representative.
RIAs are financial advisement firms that are licensed to provide financial advice and services in exchange for a fee. IARs are professionals who have the same qualifications and licenses.
2. Look for a Financial Fiduciary
It’s also important to look for a financial fiduciary. Both RIAs and IARs are considered financial fiduciaries.
A fiduciary is an individual or firm that is legally required to act in your best interest. When you hire a fiduciary, you can rest easy knowing that they’re not going to take huge risks with your money and leave you with nothing.
Many investors consider being a fiduciary an essential trait of a reliable financial advisor. Whether you’re hiring a firm or an individual, be on the lookout for that word before you sign any kind of contract.
3. Check Their Record
Before you agree to work with any financial advisor, you ought to do some background research and look into their compliance record.
Don’t trust anyone to handle your money who does not have a clean compliance record. Remember, the best advisors are those who have a history of following the rules.
You might also want to check to see if they have any complaints with the Better Business Bureau or online review sites.
4. Ask About Their Compensation Model
How do they expect to be paid? There are lots of different compensation models that financial advisors will use, including the following:
- Commission-based: These advisors receive commissions for the products they sell (mutual funds, insurance, annuities, etc.)
- Fee-based: These advisors charge a flat fee for their services and may also receive commissions for selling additional products
- Fee-only: These advisors just charge a flat fee, either as an hourly rate or a percentage of the assets they manage
Generally speaking, fee-only advisors are the safest option. They don’t have any ulterior motives and are required to act in your best interest.
5. Think About How Much Help You Need
When you’re considering hiring a financial advisor, think about the amount of help you need, too.
How often do you want to work with them? Do you just need one-time advice, or are you looking for comprehensive planning and asset management?
If you’re just interested in a one-time consultation, look for someone who only charges an hourly fee.
If you need more comprehensive advice, you can benefit from working with someone who charges an hourly fee or someone who requires a percentage of your assets.
6. Consider Their Communication Style
If you’re going to be paying someone to handle your money and advise you on financial matters, it’s probably a good idea to make sure you actually like that person and get along with them.
Try to find someone who communicates well and listens to your concerns without interrupting or passing judgment.
They should also be easy to communicate with. Do they respond to emails and phone calls promptly? Do they have reasonable office hours?
7. Consider the Other Services They Offer
Most financial advisors also offer additional services. Some sell life insurance or mutual funds, for example, or they might specialize in a specific financial discipline like tax planning or estate planning.
If you need a lot of help in a specific area, make sure you hire an advisor who has the knowledge and experience necessary to provide you with that help and ensure you reach your goals.
Looking for More Money Management Tips?
Now that you know how to find a good financial advisor, it’s time to start your search! There’s a lot to take into account, but these tips should help to simplify the process.
While you’re looking for the best financial advisor, you can take steps on your own to get your finances in order.
Do you want to learn more about managing your money? If so, we’ve got articles for you.
Start by checking out this article on investments and buying your first stock.