Making a wise decision when choosing a financial advisor can help or hinder your wealth building. Choosing an experienced, honest advisor who has a knack for spotting smart investment opportunities can help you build your wealth.
What should you look for when choosing? You’ll need to examine your own needs and the background of the potential financial advisors before contracting with anyone. Follow these six steps to find the right person for you.
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Step 1. Determine your needs.
Most financial advisors specialize, so you need to decide if you want to focus on investments, estate planning, set up a trust, hire a tax professional, or some combination of those goals. You can find advisors with general practices, who serve all of those needs, but you’ll also find many who specialize only in taxes or investments. Asking yourself a few key questions and answering them honestly can help you determine which type of financial advisor you need. Overarchingly, ask yourself if you need budget help or to create a formal financial plan. These two items steer you towards the general practice advisor.
Step 2. Research the type of financial advisor you need.
A few options include certified financial planners, stock brokers, investment advisors, financial coaches, financial therapists, and personal tax advisors. Rather than choosing someone with a modern-sounding title like financial coach or therapist, investigate which titles the individual must qualify for via certification and which must register with either the US Securities and Exchange Commission or the state in which they practice.
Look for a position, such as a certified financial planner, that provides what you need and that the law prescribes with a fiduciary duty to each customer. When the law stipulates that the position carries fiduciary duty, it means that the individual must act in the best interests of each client or customer. Always choose a registered, certified, licensed fiduciary advisor for general needs. The titles broker, dealer, and registered representative carry legal requirements, including the requirement to sell to their clients only suitable products.
Step 3. Methods of Compensation
You’ll typically obtain the best service from a fee-only advisor. You pay this type of financial advisor directly. Advisors only get paid one way or the other. The other compensation type, commission, means that they take money from the insurance company for selling its products, the investment firms for getting you to place your savings in their investment products, or they accept money from fund providers for each person they recruit to their fund.
Step 4. Check each advisor’s background and licenses.
Check each individual’s credentials. Each firm, such as AOG Wealth Management, must file a Form ADV. Each employee or advisor has a public employment record on the website of the Financial Industry Regulatory Authority (FINRA). Called BrokerCheck, this product from FINRA enables each individual to protect themselves from harmful or malicious advisors. For example, on the record for Investment Advisor Frederick Baerenz, you’d find both Series 63 and Series 65 licenses. Holding both qualifies an advisor to serve as both an investment advisor representative and a securities agent.
Step 5. Check the firm’s or advisor’s fees.
You might think you’ve found the ideal financial advisor until you interview them and find out their fees. You can look this up on their website before making an appointment. Skip the robo-advisors and find a human that fits your budget. The earlier you start planning for your financial future and estate, the better. This might restrict who you can afford, but it ensures that you’ll find an advisor that you can afford for a lifetime. Some advisors charge a flat fee while others charge a percentage of your assets managed.
Step 6. Interview each possibility.
You’ll need to find out with whom you “click,” so you work with someone with whom you get along. You need to trust their advice and respect them. They need to show you respect. You discover this in an in-person or Zoom interview.