Unlike your commanding officer, a financial advisor should not give you orders to follow. Teamwork and trust will be important factors in accomplishing your goals together. A financial advisor should educate you so you can make well-informed decisions, but not tell you what to do.
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“Financial advice is something that everyone needs regardless of circumstances,” says Shelby George, senior vice president, advisor services at Manning & Napier.
When it comes to investing, there is no one-size-fits-all model, so every financial advisor’s style is different. It is essential to find one that is right for you and your situation—someone who is able to listen and hear what your real objectives are.
When it comes to choosing a partner to oversee your financial health, you need to be selective and ask the right questions. Here are three to ask before hiring a financial advisor.
What is their educational background?
The background of a financial advisor is essential to know before getting involved with them. You’ll first want to know about their educational background, and the various degrees, designations and licenses they may have.
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Certified financial planner (CFP) is one of the most well-known designations, but others include: ChFC, chartered financial consultant; CIMA, certified investment manager; and CFA, certified financial analyst.
Each designation signifies a different level of certification, a unique type of training that they went through, and sometimes indicates a particular specialty. These are important to take note of so you can match your needs with the advisor’s area of expertise.
Depending on what certifications a financial advisor has, you can check up on their background to make sure they have a clean compliance record and ensure that their licenses are still in good standing. Rebecca Hall, managing director at RBH Global Wealth Partners, suggests doing a broker check online to investigate if there have been any complaints or grievances filed against a particular person.
What services do they offer and how does that fit what you need?
Once you know the various certifications of a potential financial advisor, you’ll want to see what range of services they offer. Do they do comprehensive financial planning, or do they do money management and help with investments -- and what’s the difference?
“What comprehensive financial planning really entails is solving those analytical questions that are more than just about investments: When can I afford to retire? How much money do I need in retirement? How am I going to educate my kids? How much do I need to set aside? What kind of vehicles can I use?” said Hall.
Look at your situation and see what types of guidance you’ll need. If you choose someone to oversee the full scope of your financial situation, you should be aware that there are 6 key areas of comprehensive financial planning, according to Hall: cash flow; protection (against “doom and gloom” scenarios); tax planning; retirement planning; estate planning; and investment/wealth management.
You’ll also want to look at, or inquire about, a financial advisor’s client history to see if they have experience with situations like yours. Especially if you have a unique case in your life, like a special needs child, or if you own a small business, you’ll want to select someone who has dealt with that before.
Customization to your needs is a necessity. “A financial advisor should be focused on an individual’s unique objectives… [and] the unique environmental impacts that are affecting those objectives. There really needs to be a level of listening and customization that an advisor is bringing to the table,” said George.
Do you feel like you can trust them?
The most important question you need to ask before hiring a financial advisor is whether or not you can trust them. Keep in mind that this is a personal relationship in which you’ll be sharing intimate details of your financial life.
George says to have a conversation with a potential financial advisor and look for connectivity. Is the person really listening to you? Do you have things in common? Are the makings of a relationship there?
You need to feel comfortable and confident in the relationship on a personal level. If you don't click from a personal standpoint, then it will be hard to really place your trust in them.
“Ultimately, what an investor needs in a financial advisor is someone who is going to understand their individual objectives. That's more relationship-driven than any sort of credential or academic background,” said George.
And the best way to find a financial advisor may be by asking your family, friends and colleagues to recommend someone they trust. According to Hall, the practice is based nearly 100% on referrals.