Everything you need to know about choosing a financial advisor

By: Joe Barbieri on April 18, 2016

Why would you need a financial advisor?

When asking this question, you might as well ask why you need a doctor, a lawyer, an auto mechanic or a personal trainer. Your financial advisor provides a service that has the potential to create a better standard of living for you. The other question that can be asked is, “Am I able to manage my money goals on my own?” If you feel that managing money on your own is too daunting, complicated or the results are not satisfactory, financial advice is worth considering.

Choosing a financial advisor who works for you

You are far more likely to have a good experience when have a financial advisor that works for you. There are things to keep in mind that maximize the likelihood of having a good experience with financial advice. Here are some things to consider when choosing a financial advisor: 

  • Does this person provide you with what you are asking for?

  • Do they make sense in their approach and in providing answers to your questions?

  • Do you understand why they are recommending certain strategies and how much they cost?

  • Have they presented alternatives that may achieve your goals?

If someone refers a financial advisor to you, ask them what they like about the advisor, and whether their reasons for recommending them are similar to what you want. Yes, you can manage your money on your own, but a financial advisor may provide you with some insight that you would not figure out otherwise. Sometime, even if you could figure out the financial information on your own, it might not be as quickly, easily, or cheaply as when you get the professional outside opinion of a financial advisor.

How do you know if your advisor is giving you what you need?

The first thing to keep in mind what you are looking for. Common reasons why people need financial advisors have been expressed in the following ways:

  • I want an objective opinion. I want someone who can tell me if am missing anything.

  • I do not have time to research the markets. I want someone to do the work for me or get me started.

  • I know some things, but I would like someone who is in the field to cover what I do not know.

  • I have a complicated financial situation. I might have a business, complex investments, rental properties, or an uncommon tax scenario. I want access to the expertise of a financial advisor, or network of people, including estate planners, lawyers, accountants, tax professionals or other specialists.

  • I am not good at handling money (or I don’t feel like I have the time to do it effectively) so I want to outsource this aspect of my life.

A big issue with financial advice is transparency and cost. When choosing a financial advisor, you need to be aware of how he or she is paid. How much is the advice worth and how are you paying for it?

Many institutions include the advice along with the selling of products. There is no explicit out-of-pocket charge for advice, so some people say that it is free. It is not free, though; it is being paid for by members, subscribers, advertising, accessibility to customers, or other indirect methods.

In the case of this type of advice, the time being spent with an advisor is not subsidized by other people, but by the products you buy. This is why many advisors ask how much money you have before they will see you. The fee they charge is usually based on a percentage of the money you use to buy products or the “assets” invested. This is true of traditional or commission advisors, but not od all advisors. It is helpful to know how the advisor charges you and how they are paid for their work so you can make an informed decision about what might work best for you.

Choosing a financial advisor is a lot like looking for anyone who is providing any specialized service. It is helpful to spend the time and do the homework to maximize the benefit you hope to receive.

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