Choosing a Financial Advisor: 5 Questions to Ask

If you’ve been paying down your debt for years but can’t seem to get ahead or you’re not sure how to get started saving for retirement, it might be time to get professional help. A financial advisor can answer all your money-related questions and offer advice on the best way to manage your finances. But not all financial professionals are alike. It’s important to look for one whose qualifications and experience are right for your situation.

Here are a few questions you should ask before making a final decision.

1. What Kind of Professional Licensure or Certification Do You Have?

When you’re shopping around for a financial advisor, it’s easy to be overwhelmed by the number of choices available. There are four basic types of finance experts to choose from. Each is subject to different standards so you need to know upfront what type of professional you’re dealing with.

For example, stockbrokers, investment representatives and bank representatives are required to pass the Series 7 and Series 63 securities examinations. These individuals are registered representatives who sell investment and insurance products and are typically paid on commission. Financial planners can perform some of the same services but there are no professional licensing requirements. If you decide to go with a financial planner, you should look for one who’s earned certification through a professional organization, such as the Certified Financial Planner Board of Standards.

If you’re looking for someone to manage your investments, you could go with a Registered Investment Advisor or Investment Advisor Representative. These types of advisors are generally required to register with the Securities and Exchange Commission and they’re held to the highest professional standards. They may be compensated on a fee basis or via commissions. Money managers are subject to the same guidelines as investment advisors but they have the power to make investment decisions without getting the client’s approval beforehand.

2. How Much Experience Do You Have?

In addition to asking about their professional certification, it’s also a good idea to ask a prospective financial advisor about their overall experience. Generally, the more experience they have the better. This is especially true if you’ve got a complicated financial situation that needs untangling. Some of the things you might want to ask about include their education, previous employers and their track record of success.

You might also want to consider performing a background check to find out whether they’ve ever been convicted of a crime or been involved in a criminal investigation by a regulatory or trade group. Don’t be afraid to ask for references from current or previous clients but be wary of a financial advisor who seems reluctant to part with this information.

3. What Type of Services Do You Offer?

Some financial advisors offer a wide range of services while others specialize in just one or two aspects of financial management. For example, some advisors may only handle investments while others take a more comprehensive approach that includes retirement planning, estate planning, tax planning, etc. Ideally, you should look for an advisor whose range of services most closely fits your current and future needs.

It’s also helpful to ask whether they specialize in any one type of client. Some financial advisors may cater to retirees while others may prefer to work with families or divorcees. Choosing an advisor who works exclusively with clients whose situations are similar to yours means they’ll be better equipped to offer the type of guidance and advice you need.

4. What’s Your Fee Structure?

Before you sign on the dotted line, you need to know how much your financial planner will charge for their services. Depending on the type of professional you’re working with, they may receive a flat or an hourly fee, be paid on commissions or a combination of both. Fee-based advisers, for example, charge an upfront fee but they also get a commission for selling financial products.

Fee-only advisers only make money from the fees they charge their clients. Some fee-only advisors charge a flat rate while others charge by the hour. Advisors who cater to clients with a high net worth may calculate their fees based on a percentage of the assets they manage. If you’re worried about being subject to regular sales pitches, you might be better off with a fee-only financial planner.

5. What’s Your Investment Approach?

Last but not least, you should also ask what type of approach they take to investing. If you’re not comfortable taking on a lot of risk with your investments, you’ll want a financial advisor who advocates a more conservative strategy. Knowing whether or not their investment style matches your personal investing philosophy beforehand can save you a lot of headaches in the long run.

Choosing a financial advisor isn’t easy but it could pay off big if you find the right one. Taking the time to identify your needs and research prospective financial planners can make finding the best fit that much easier.

Tips for Choosing a Financial Advisor

If you know you want an advisor from a specific company (like UBS Wealth Management), you can go directly to them to find someone near you.
You can get a recommendation from someone you trust about their advisor. The only problem here is that your needs might be different than those of the person doing the recommending.
Need help finding a financial advisor – or unhappy with the one you have? We designed a tool to streamline and personalize the process. All you have to do is answer about 20 questions and our tool matches you with up to three advisors who can provide expertise based on your profile and goals. You don’t have to spend hours interviewing dozens of people and firms. Check out their profiles, interview them on the phone or in person and choose who to work with in the future.