How to Choose a Financial Advisor: Your Step-by-Step Guide
1. What Is a Financial Advisor?
A financial advisor is a professional who guides managing your money. This can include investment advice, retirement planning, tax strategies, and estate planning. Advisors can hold various titles, such as CERTIFIED FINANCIAL PLANNER® or Registered Investment Advisor (RIA). Each designation comes with different qualifications, so it’s essential to understand what these mean and how they align with your goals.
2. What Are the Types of Financial Advisors?
Financial advisors typically fall into two categories:
Fee-Only Advisors: These professionals are paid directly by clients and do not earn commissions for selling financial products. This model removes conflicts of interest.
Commission-Based Advisors: These advisors earn a commission from the financial products they recommend. While this isn’t inherently bad, it’s essential to ensure their recommendations align with your best interests.
When choosing a financial advisor, look for a fiduciary. Fiduciaries are legally required to act in your best interest, which adds an extra layer of trust to your relationship.
3. What are the Key Questions to Ask a Financial Advisor
Before committing to an advisor, schedule an initial consultation and ask the following:
Are you a fiduciary?
A fiduciary is obligated to put your interests first. Non-fiduciary advisors may recommend “suitable” products that aren’t necessarily the best choice for you.
How do you get paid?
Understand their fee structure. Are they fee-only, commission-based, or a combination of both? Common fee models include a percentage of assets under management (AUM), hourly rates, or flat fees.
What are my total costs?
Beyond advisor fees, ask about other costs, such as fund expense ratios, transaction fees, and administrative charges. These fees can significantly impact your long-term savings.
What are your qualifications?
Look for credentials such as CERTIFIED FINANCIAL PLANNER®, CFP®, RIA, or Chartered Financial Analyst (CFA). Verify their certifications using resources like the Financial Industry Regulatory Authority’s (FINRA) professional designations database.
What is your investment philosophy?
Ensure their approach aligns with your financial goals. For instance, if you value socially responsible investing, ask how they can tailor your portfolio to reflect your values.
Who are your typical clients?
Choose an advisor experienced with clients in similar financial situations. For example, if you’re a business owner, seek someone familiar with entrepreneurial needs.
How will we communicate?
Discuss how often you’ll meet and the preferred methods of communication. Will they be accessible via email, phone, or in-person meetings?
Who holds my investments?
Ensure the advisor uses an independent custodian to safeguard your assets. This adds a layer of security and transparency.
What is your approach to taxes?
Ask how they incorporate tax efficiency into their investment strategies. Effective tax planning can significantly enhance your net returns.
What benchmarks do you use to measure performance?
Ensure the advisor uses appropriate benchmarks to evaluate investment performance. They should clearly explain how these benchmarks relate to your portfolio.
4. What are the Red Flags to Watch out for When Choosing a Financial Advisor?
While many advisors are trustworthy, it’s essential to stay vigilant. Be cautious if:
They avoid discussing fees transparently.
They promise unrealistic returns.
Their investment philosophy seems overly complex or unclear.
They are unwilling to provide references or credentials.
5. Why Choose Falcon Wealth Planning?
At Falcon Wealth Planning, we pride ourselves on being a fee-only, fiduciary financial advisory firm. Our CERTIFIED FINANCIAL PLANNER® and registered investment advisors (RIAs) work to make financial planning simple and tailored to your unique needs. From investment strategies to tax planning, we’re here to guide you every step of the way.
Final Thoughts
Choosing the right financial advisor is a significant decision that can shape your financial future. By asking the right questions and prioritizing transparency, you’ll find an advisor who aligns with your goals and values. Ready to get started? Contact Falcon Wealth Planning today for a free financial assessment and take the first step toward financial clarity.
*The content in this blog is for general informational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Falcon Wealth Planning, Inc., a fee-only, true fiduciary, registered investment advisor, provides this information to give a broad understanding of financial concepts and strategies.