What factors go into selecting a financial advisor? Here are four important issues to consider.
Selecting a financial advisor can be an important aspect of wealth management, according to Millionaire Corner research, which indicates the vast majority of high net worth investors have long-standing relationships with financial professionals.
“Remember, part of making the right investment decision is finding the investment professional that best meets your financial needs,” sates the Financial Industry Regulatory Authority, a self-governing agency that oversees the brokerage industry. “Do not rush. Do your background investigation.”
FINRA offers investors an online Professional Designations Tool to help them understand the scores of credentials financial professionals might use. The agency also offers the following tips for investors selecting a financial advisor:
1. What type of services do you need?Before selecting a financial advisor, an investor should first consider their financial goals and the types of services they need. According to FINRA, “There is a wide variation in the range of products and services that investment professionals offer.” Do you need help with investment planning, tax planning, estate planning or retirement planning? Are you looking for advice on picking mutual funds, or individual stocks and bonds?
2. Interview prospective advisors. FINRA advises meeting face-to-face with prospective advisors, and talking to several before making a decision. Investors can ask an advisor about specialties, professional designations, registrations or licenses and work experience. Information about educational background, disciplinary history and products or services offered can also be helpful in selecting a financial advisor.
3. How is an advisor paid?It’s important for investors to understand how an advisor is paid. Does he or she charge a flat fee for services? An hourly fee? Does the advisor charge a commission on products sold? Does the advisor collect a fee based on the percentage of assets under management? Is the compensation based on a combination of fees and commissions? Does the advisor receive any additional incentives to sell a product?
4. Registrations and designations?Is the investment professional registered with regulators such as FINRA, the U.S. Securities and Exchange Commission or state regulators? What designations do the professionals have? An important aspect of selecting a financial advisor is verifying designations and making sure advisors are currently authorized to use them.
Selecting a financial advisor can be time consuming, but it pays off in the end, according to investors surveyed by Millionaire Corner in October. More than 70 percent say working with a financial advisor improves knowledge of investing, more than 60 percent say an advisor provides a wider range of investment opportunities and also improves investment returns. Selecting an advisor can also have emotional rewards, according to 57 percent of investors who say working with an advisor gives them “peace of mind.”