5 Signs You Can Trust Your Financial Advisor

By Markets Fool.com

Many of us need a little outside help when it comes to things like investing and planning for the future, and that's where financial advisors come into play. According to the Certified Financial Planner Board, consumer use of financial advisors increased from 28% in 2010 to 40% in 2015, yet 63% of people still believe that current laws don't do enough to protect them from shady investment practices. And in a 2016 study examining over 1 million records, roughly 7% of financial advisors had documented instances of misconduct ranging from negligence to fraud.

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In other words, in the world of financial professionals, there are a lot of bad eggs out there, and getting stuck with a dishonest advisor could mean losing much of your hard-earned money to fees and exposing yourself to more risk than you're comfortable taking on. Thankfully, there are plenty of financial advisors out there who know what it means to operate with integrity. Here are five positive signs to look out for.

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1. Your advisor talks openly about risk

Most investments come with a degree of risk, and it's almost always the case that the higher the risk, the higher the reward. Any advisor who tries to downplay the risks associated with investing is effectively doing wrong by his clients. A good advisor will not only talk about risk, but run numbers showing you what you stand to gain and lose in different market scenarios.

2. You understand what fees you're paying

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Financial advisors have to make money, and they can do that in several ways. Some earn commissions based on the investments they sell. Others earn a fee that's calculated as a percentage of assets under management. There are also those advisors who take a hybrid approach between the two. Many people prefer fee-based advisors to those who are commission-based, because their advisors' fees are somewhat linked to their accounts' performance (meaning, when you do well, your advisor does well, and everybody wins). Furthermore, commission-based advisors are often tempted to push certain investments over others because they come with higher commissions. But in reality, it almost doesn't matter what your advisor's compensation structure is as long as he'scompletely open and honest about it, both up front and along the way. If you're well aware of how much you're paying your advisor, it means you're dealing with someone who believes in transparency.

3. Your advisor tries to educate you about investing

Some advisors tend to throw around buzzwords and investment speak, partly to show off, and partly to come across as experts. And those people may very well be experts, but that doesn't make them trustworthy. A good advisor won't just try to sell you a certain stock or mutual fund; he'll explain your options in detail and encourage you to learn more about what each one entails.

4. Your advisor asks to meet regularly to review your portfolio

When it comes to your portfolio, the last thing you want to do is set it and forget it. But some advisors have a tendency to meet with their clients only when they have new investments to push, or are looking to talk their clients into investing more money. A trustworthy advisor is one who proactively invites you to discuss your investments, review his performance, and talk through any concerns you might have.

5. Your advisor remembers your goals (and cares about them)

There's no one-size-fits-all approach to investing, nor is there some magic universal savings target you should aim to have reached by a certain age. Your advisor's job is to take the time to understand your personal goals and craft a financial plan that works to achieve them. If your advisor seems cognizant of these goals when making recommendations, it's a sign that's he not only listening, but working with your best interests in mind.

Hiring a financial advisor isn't the same thing as hiring a plumber or landscaper. Ideally, your financial advisor will be someone you turn to for guidance through various stages of your life. If something about your advisor just doesn't seem right or you're not comfortable voicing your concerns about your assets' performance, you shouldn't hesitate to make a change. After all, to an extent, your financial future is in your advisor's hands, and you deserve to feel 100% comfortable that you've found the right person for the job.

The article 5 Signs You Can Trust Your Financial Advisor originally appeared on Fool.com.

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