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Next up, you’ll find traditional financial advisors most people think of, which may call themselves wealth planners or investment advisors. Also note that some financial advisors go the extra mile to earn the Certified Financial Planner (CFP) designation, which is awarded by the Certified Financial Planner Board of Standards when an advisor completes the CFP exam and keeps up with ongoing education in order to stay on top of their industry.
Traditional financial planners typically get paid in one of three ways:
Financial planners are often fee-based, which could mean they are paid using AUM, or with a flat fee for their services
Some financial advisors are commission-based, meaning they make money when they sell you investments
Others earn a fee for their services and commission on the investment products they sell
This is where things get tricky and part of the reason traditional financial advisors have gotten a bad rap. In some cases, advisors who earn a commission have been known to move their clients into complicated, expensive investments that also pay huge commissions to the investment “salesperson.”
For this reason, it’s smart to know how your investment professional gets paid, and to opt for an advisor that gets paid with a flat fee or using AUM. This payment structure allows them to give you the best advice for your situation without having to worry about commissions. An AUM structure in particular also rewards your financial advisor for growing your portfolio balance over time, which is the whole reason you hired them in the first place.
Questions to Ask Every Financial Advisor
If you plan to go with a robo-advisor, then you can find all the information you need by researching all the top robo-advisors and what they have to offer. But if you plan to hire a financial professional to work with you on a one-on-one basis, you need to make sure you’re asking the right questions.
Here’s everything you need to ask every financial advisor you’re considering:
How do you get paid? You should know how your financial professional gets paid as well as whether they earn commissions on the investments they sell. If you want to work with a financial advisor who does not earn commissions, then you’ll want to seek out a fee-only financial advisor.
Are you a fiduciary? A financial advisor who is a fiduciary is legally required to put your interests first as they craft your financial plan. You should find out if each financial advisor you interview is a fiduciary and stay away from ones that are not or refuse to answer the question.
Are you a Registered Investment Advisor (RIA) or an Investment Advisor Representative (IAR)? These are the two main registrations that permit financial professionals to provide financial advice in exchange for compensation. Anyone who does not hold one of these registrations shouldn’t be offering financial advice, so make sure to ask.
Do you hold any certifications? Does your advisor hold a CFP designation or have another professional certification like Certified Public Accountant (CPA)? Professional certifications can show that a financial advisor has gone the extra mile to stay educated and informed in their area of expertise.
What services do you offer? Some financial planners focus on retirement planning, while others may have expertise in working with high net worth individuals or minimizing taxes. Make sure you know exactly what each financial advisor is offering in terms of account management and advice, and look for a professional who specializes in working with people just like you.
Red Flags to Watch Out For
When hiring a financial advisor, it’s crucial to make sure you’re asking all the right questions. At the same time, there are some pretty obvious red flags you should look for along the way. These can include:
Financial advisors who won’t tell you exactly how they get paid
Professionals who work for companies that focus on specific products like whole life insurance or annuities
Any time a financial advisor starts suggesting products without knowing your full financial situation
Advisors who don’t take the time to ask you about your goals
Financial planners who do not act as a fiduciary
Financial advisors who have a shady or questionable past, which you can find out by using BrokerCheck by FINRA
At the end of the day, any financial advisor you place your trust in should be someone who is completely open and honest about the way they work and how they get paid. If you’re worried about using a financial planner who earns big commissions for products they sell, seek out fee-only financial advisors who are paid a flat percentage or rate no matter which investments they suggest.
Frequently Asked Questions (FAQs)
The following questions and answers can aid in your quest to find the right financial advisor.
A financial fiduciary is a professional who is legally required to put their client’s interest first. If they do not act in their client’s best interests, they could be held legally liable.
Choosing a financial advisor who is a fiduciary is crucial if you want quality, expert advice that is suitable for your situation.
The BrokerCheck tool from FINRA lets you research the background and experience of financial brokers and specific firms. This tool is free to use.
Financial advisors may be paid in different ways. Some fee-only financial advisors are paid a flat fee or as a percentage of your investments (known as AUM), while others are paid commissions on the investments they sell. Some financial advisors may also be paid fees and commissions, so make sure to ask.
Robo-advisors are technology-based companies that manage your money and help you plan your investments for a lower cost than traditional financial advisors.
Итог
Finding the right financial advisor for your needs is an important task. After all, the advice this professional offers could mean the difference between never reaching your goals or retiring wealthy and on time.
There’s no “right” or “wrong” way to choose a financial planner to manage your wealth, but there are plenty of questions to ask and red flags to watch out for. Whatever you do, don’t work with the first financial planner you come across without asking how they get paid and checking into their background. The best financial advisors have nothing to hide, but you shouldn’t take their word for it.
Disclosure:All investing is subject to risk, including the possible loss of the money you invest.
Advice services are provided by Vanguard Advice Services, a registered investment advisor, or by Vanguard National Trust Company (VNTC), a federally chartered, limited-purpose trust company. Vanguard Advice Services, VNTC, or Vanguard’s Personal Advisor Services cannot guarantee a profit or protect against loss.
The services provided to clients who elect to receive ongoing advice will vary based upon the amount of assets in a portfolio. Please review the Vanguard Personal Advisor Services Brochure for important details about the service, including its asset-based service levels and fee breakpoints.