Yahoo Finance 10 Questions to Ask Before You Hire a Financial Advisor
Know when you need professional help.
Many Americans attempt to navigate the complex world of investing and retirement planning on their own, when guidance from a qualified financial advisor could make a world of difference. If you need surgery, would you do it yourself? It's the same with your financial future. The value of a financial advisor goes beyond investing your portfolio, says Beth D. Lynch, certified financial planner with Schneider Downs Wealth Management Advisors in Pittsburgh. "It's about working with clients through major life changes, planning for retirement or saving for college -- in other words, mapping out all aspects of one's finances," she says.
What is a financial advisor?
Financial advisors educate their clients, keep them from overreacting to market movements and help them make good financial decisions throughout their lives to meet their goals, Lynch says. "A financial advisor can help their client stay on track when it comes to saving for particular goals. They also bring value at a client's distribution stage and during retirement. Financial advisors give advice on areas such as which accounts to make withdrawals from, how those withdrawals are taxed and when to start taking Social Security," Lynch says.
How does a financial advisor help?
Think of a good financial advisor as the quarterback of your financial life. "They act as a psychiatrist during challenging markets and life issues that have a financial impact, such as divorce and death," says James Poer, CEO of Kestra Financial, an independent advisor platform headquartered in Austin, Texas. "These advisors are coordinating between family, attorneys, tax advisors to help people make sure that they are securing whatever their financial plans may be, be it retirement, college education, providing for families or estate planning."
What are their credentials?
There is an alphabet soup of acronyms when it comes to the financial arena. The CFP, certified financial planner, and ChFC, chartered financial consultant, are the "gold standard" for advisors, says Greg Stevens, certified financial planner, principal and senior wealth advisor at Cabot Wealth Management in Salem, Massachusetts. Checking for credentials is only part of the process, though. "A designation is just letters until it's put into use, so a good way to sort through the noise is to ask an advisor what they value about the designations they have," says Tyler Landes, a fee-only financial planner at Tandem Financial Guidance in Kansas City, Missouri. "How has that training helped them to serve clients better?"
Is there a team to support your needs?
An investor should look for a firm that provides a team of individuals skilled in all aspects of planning, Stevens says. "Having a CPA on staff to handle tax planning and preparation and a CFA to help with investment analysis is important. A team of individuals working on a client's financial situation is always better than one," Stevens says.
Who do they typically work with?
You want an advisor who wants to work with you and who specializes in your situation, Landes says. "If you're young and starting a family, you wouldn't go to an advisor who specializes in retirement distribution planning," Landes says. "If you need help with cash flow and budgeting, it doesn't make sense to use an advisor who specializes in portfolio management. You are some advisor's ideal client, and they are looking for you, too."
How are they compensated?
Do they charge a percentage of the assets they manage? Are commissioned-based financial products, such as life insurance, annuities and mutual funds, being sold? Do they charge by the hour or on retainer? "Compensation structures aren't innately good or bad, but make sure you know what you're paying for," Landes says. "If you want financial planning but you're paying to be sold an insurance policy, then it may not be the right fit."
Do they operate as a fiduciary?
This is the buzz in the financial industry these days as the Labor Department recently expanded its definition of the fiduciary rule, which means being legally required to act in the client's best interests.
How long have they worked with clients?
Look for someone who has experienced times of market volatility and uncertainty, Stevens says: "They'll tend to have better perspective than someone new to the business."
Can they provide references?
This is an important question to ask, and the answer could be informative. "This gives you a chance to talk to current clients they have done planning with," Lynch says. "You can ask them questions about their experience from the client's point of view."
How much time will they devote to you?
Service matters. You want to work with someone who pays attention to you, Lynch says. "They can have many designations and lots of education, but if they are not willing to answer your questions and concerns, meet with you on a regular basis and be available when you need them, this relationship will not grow," she says. "Building a relationship with your advisor is very important. You want to be sure you are on the same path to meeting your financial goals and aspirations."
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