What To Look For In A Financial Advisor
Welcome to this post on what to look for in a financial advisor!
It’s easy to think that the internet has it all. That it only takes one simple query on Google to get the answer that you need. While that would be ideal, some things in life need the expertise of someone who’s been in the industry for years. Especially with your finances.
As a teenager, finding a financial advisor is probably not on your to-do list. However, if you’re planning for your future as early as now, they’re the people you can turn to if you have tons of questions running through your head about how to handle your money.
Don’t be intimidated by them—financial advisors are not exclusive to the rich. They are here to assist the average person and teenagers just like you!
Without further ado, let’s list down the things you’ll need to do when choosing the right financial advisor.
1. Ask Yourself What Financial Services You Need
The first thing to do whenever you’re looking for advice from a financial advisor (or any other adult, for that matter) is to ask yourself what you’re really looking for. Find out which elements of your financial life you need help with. You’ll want to be ready to clarify your specific money management needs when you first meet with your advisor.
You can start by asking yourself the following questions:
- Do you need answers about building wealth using debts?
- Would you like to create a financial plan for your future?
- Do you need help understanding taxes?
- Are you looking to improve your financial literacy?
- Are you having a difficult time investing as a teen?
The answers you’ll have will help you figure out what type of financial advisor you’ll need. Keep in mind that financial advisors do more than simply give investment advice. The best financial advisor is one who can assist you with all of your financial goals.
2. Learn About The Many Types of Financial Advisors
Fair warning: when you’re looking for a trustworthy advisor, you’ll quickly notice that they go by many names. Investment advisors, certified financial planners, portfolio managers, brokers, financial coaches, financial therapists, and the list goes on. So who do you go to? And who should you trust?
When looking for a financial advisor, one thing you should never do is assume that someone who uses an official-sounding title has any specific training or qualifications. Unfortunately, there is no federal legislation that governs who can use the title of a financial advisor or offer financial advice. While many people call themselves financial advisors, not everyone is looking out for your best interests.
Before trusting anyone who calls themselves a financial advisor, it is important that you thoroughly evaluate them to make sure that they are good for you, your money, and all your financial goals.
This is where fiduciary duty comes into play. It sounds like a bunch of words you’d want to steer clear of, but fiduciary duty is simply the obligation of financial advisors to act in their client’s best interests rather than their own.
Always work with a licensed, registered fiduciary, preferably one that is fee-only, meaning you pay the advisor directly rather than through commissions for selling certain investment or insurance products.
Check out the table below to see how you can differentiate fee-only financial planners from fee-based financial planners.
|Fee-Only Financial Planner||Fee-Based Financial Planner|
|Clients pay them directly for their services; they are not eligible for other forms of remuneration, such as payments from fund providers||Paid by clients but also via other sources like commissions on financial products that clients buy|
|Act as a fiduciary, which means they must prioritize their clients’ needs||Brokers and dealers (also known as registered representatives) must only sell products that are “suitable” for their clients|
You can also look into Registered Investment Advisors (RIAs). They are companies that offer fiduciary financial advice. RIAs employ Investment Advisor Representatives (IARs), and they are all bound by fiduciary duty. Some may have additional certifications, such as the Certified Financial Planner (CFP) designation.
Alternatively, if you’re really tech savvy, you might want to consider robo advisors. Robo advisors provide automated, low-cost investing advice. Most focus on assisting consumers with investing for mid and long-term goals, such as retirement, through pre-constructed diversified portfolios of exchange-traded funds (ETFs).
Regardless of what title, designation, license, or certification a financial advisor claims to have, it’s up to you to check an advisor’s qualifications and experience. Before you agree to deal with an advisor, do your homework first!
3. Select The Financial Advisor Services You’ll Need
Financial advisors provide a variety of services, but they may include any or all of the following:
- Budgeting Help. Budgeting has become a lost art over the past few years. It’s a good thing financial advisors are pros at helping you determine how to properly manage your money. Advisors can assist you in creating budgets so that you may achieve your financial objectives.
- Investment Advice. If you’ve always wanted to invest but have no idea where to begin, financial advisors can investigate various investment possibilities and ensure that your investment portfolio remains within your risk tolerance.
- Debt Management. Financial counselors will work with you to create a repayment plan if you have outstanding obligations such as credit card debt or student loans.
- Retirement Planning. It may seem too far off to worry about, but the earlier you prepare for retirement, the better. Financial advisors can assist you in building funds for the long-term objective of retirement.
- College Planning. If you’ll be funding your own college education, financial advisors can assist you in crafting a plan to save up for higher education.
- Insurance Coverage. Depending on your financial condition, financial advisors may analyze your current policies to find any gaps in coverage or propose additional types of policies, such as disability insurance or long-term care coverage.
While not every financial advisor offers this, some can provide emotional support and perspective during volatile economic times. So, if you need it, make sure the financial advisor you choose provides the services you require in both your financial and non-financial lives.
4. Consider Your Budget
We’re not going to sugarcoat it: financial advisors can get a little bit costly, especially for teenagers. But if you really want to create a better financial future for yourself, then they are an investment that will be totally worth it.
Luckily, advisors now provide a range of pricing models, making their services more affordable to customers of diverse financial backgrounds.
Of course, before you commit to services, it’s critical to know how much a financial advisor charges. In general, there are three cost levels that you will encounter:
- Robo Advisors. These platforms frequently charge an annual fee based on a percentage of your account balance. Fees for robo advisors typically begin at 0.25% of the assets they manage for you, with many of the top providers charging 0.50% or less.
- Online Financial Planning Services and Advisors. These services typically charge either a fixed subscription fee, a percentage of your assets, or both.
- Traditional Financial Advisors. These individuals often charge a percentage of the amount managed, with a median fee of 1%, although this can vary greatly depending on the size of the account. Others may opt for a flat fee, an hourly rate, or a retainer fee.
The amount you should pay for a financial advisor is determined by your budget, assets, and the degree of financial guidance you require. If you have a small investment portfolio, an in-person advisor may be overkill. Hence, a robo advisor will save you money while providing the guidance you need.
On the other hand, if you are in a more complicated financial situation, then traditional financial advisors or online financial planning services might be what you’re looking for.
5. Examine The Financial Advisor’s Background
Time to do a little digging! If you decide to work with a traditional financial advisor, you will need to do a lot of research on them before formally working with them. You want to make sure that the individual leading your financial decisions is skilled and worthy of your trust.
Before you proceed to the interview stage, make sure to check the following:
- Credentials. Check with the issuing authority if your prospective advisor has an industry designation. Confirm the training they have received, and inquire about any complaints the authorities may have had about the advisor while you’re researching.
- Licenses. Confirm with your state’s regulatory agency to see if a financial advisor’s license (or licenses) was lawfully granted and is still valid. Also check if the advisor has ever faced consumer complaints, regulator action, or lawsuits.
- Referral. The strongest predictor of future success is past performance. Request at least three client references from possible advisors. Ideally, the advisor has worked with their suggested client for at least two years, giving them adequate time to execute their advice. Contact these references and ask them open-ended questions such as:
- What specifically do you like about this financial advisor?
- Is there anything you don’t like?
- Are they a good communicator? How frequently do you speak with them?
- Do they carefully listen to your issues and concerns and do they answer your queries?
You can also look for financial advisors online. Many professional financial planning organizations offer free financial advisor databases such as NAPFA (The National Association of Personal Financial Advisors), XY Planning Network, and ACP (Alliance of Comprehensive Planners).
When looking for a financial advisor, it’s important to know exactly what they provide. Before you recruit someone, ask them the following questions:
- Are you a fiduciary? You’ll want to be sure they’re dedicated to operating in your best interests at all times.
- How do you get paid? Understanding how an advisor is compensated is crucial to understanding how the relationship will develop. You’ll want to make sure their incentives are in line with yours and that they aren’t just doing something for the sake of getting paid.
- What will happen if you ever change firms? People leave their jobs for new opportunities, but it may be disruptive when a valued advisor leaves without any warning whatsoever. They may not be able to contact you at their new firm, and your account may be transferred to someone you don’t even know.
- How does your company evaluate your performance? If you want to understand your advisor’s motivations, you can opt to ask this question. They may claim to be working for you, but if their annual bonus depends on them doing something else, they will most certainly behave in their own best interests.
Other questions to ask:
- Are you acting as a fiduciary 100% of the time?
- What is your financial planning strategy?
- What is your investment philosophy?
- What kind of financial planning services do you provide?
- What kinds of clients do you often work with?
- How will our relationship work?
- How often do you communicate with your clients?
- How will we measure my progress?
It’s never too early to seek the advice of a professional when you want a brighter and better financial future for yourself. As a teenager, it’s easy to trust the first financial advisor you come into contact with. However, remember that the advice they will give you might make or break all your financial plans and goals.
If you use the guidelines above to choose a financial advisor, you’ll more likely find an ethical, knowledgeable, and skilled professional who will prioritize your financial interests throughout your entire partnership. Some financial advisory relationships last decades, much to the delight of both the client and the advisor.
Remember that you have worked far too hard and for far too long to trust your financial future to a complete stranger. That’s why you need to deliberately seek out someone who will work in your best interest.
It’s going to take time and a whole lot of effort on your part. But, in the end, you’ll probably get better advice, save money, and even earn more while reaching your financial goals. And, in our book, that’s worth all the extra legwork!
Looking for more financial advice as you start your journey toward financial freedom? We’ve got you covered! Head over to our blog for more helpful articles just like this.
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Disclaimer: We are not experts or certified financial advisers. Our advice for you based on what has worked and continues to work for us. If financial problems occur we are not responsible for them and advise that you speak to a professional. That being said, we believe wholeheartedly that the advice we give to you will help your financial situation greatly.