10 Important Tips For Choosing A Financial Advisor

Finding a financial advisor can be a difficult task for savers and investors, even though they are an important part of high-quality retirement planning and investment strategy building. Regardless of your specific financial needs and future plans, the services of a financial advisor can be immensely helpful. Many savers use financial advising services without even knowing that they are engaging in these types of augmentations. Those who invest with the use of robo-advisors, and others who purchase large volumes of index funds or ETF holdings, are making use of advising services, perhaps without even a passive knowledge of the service. Robo-advisors make use of algorithms to craft potentially lucrative investment strategies while fund assets are built by human advisors and managed on a regular basis either by those individuals or through algorithmic programming as well. The maintenance charges that you pay for the privilege of investing in these assets cover the cost of engrained financial advising services.

But another option that many people want to include in their long-term savings profile is a partnership with a financial advisor who works directly with consumers. Advisors like this are an invaluable asset to savers everywhere. They get to know you personally and learn about your investment journey, long-term needs, and savings goals on an intimate level. With these tips, identifying a financial advisor that will fit into your plan is more straightforward.

Recommendations can go a long way

Perhaps the first thing you should look for when seeking a new financial advisor is a recommendation. Asking your friends and family about their own investment strategy and financial services can help you get a sense of trusted professionals in your area. Financial advisors bridge the gap between salespeople and hermits who squirrel themselves away in a backroom and only concern themselves with data and market analytics. A high-quality financial advisor must be forward-facing and client-focused, allowing for a free exchange of ideas and conversation between themselves and their clients. But a successful financial advisor could not keep the business of their clients if they didn't perform well. And so, a financial advisor must also be highly experienced and adept at reading the market, understanding fiscal fundamentals within company earnings reports, and much more.

When asking for recommendations from people you know, you're likely to get a mix of both types of appraisal. On the one hand, no one would recommend a financial advisor who loses money. This means that you'll only hear good things about good investment professionals who consistently earn their commission. But a recommendation also will naturally encompass the person's feelings about their advisor on a more human level. This will help you get a sense of the customer service aspects of any advisor's offerings.

Always prioritize using a fiduciary, if you can

A fiduciary should always be your go-to when seeking out a new financial advisor. This is because fiduciaries are legally obliged to provide you with quality information that best serves your needs, rather than their own. This might sound like a strange legal obligation, considering that all financial advisors provide advice and services to help you maximize your investment profits. However, a little-known secret that may catch novices off guard revolves around the difference between a financial advisor and a true fiduciary.

In the same way that a lizard is a reptile, but not all reptiles are lizards, a fiduciary is a financial advisor, but the obverse is not always true. A financial advisor is a professional who provides fiscal and investment advice, but if they aren't a fiduciary, then they aren't bound by a legal duty to provide you with the best possible advice for your circumstances. This means that a run-of-the-mill financial advisor could steer you toward investments that are profitable but provide them with the best service charges or margins as a side benefit for themselves. A fiduciary, on the other hand, is duty-bound to maximize your profits over any other external considerations. Fiduciaries must place you, as the client, first. This is not to say that a non-fiduciary wouldn't, but that they don't have to.

Experience can't be replaced

Experience is a critical asset when it comes to selecting a financial advisor. Investors with considerable experience in the market are often better positioned to continue enjoying success over the long term. Experience isn't everything, but it allows for an increased sense of confidence when adverse market conditions take over. One thing that sets experienced investors apart from those who are newer in the marketplace is the response to bear market conditions, correction periods, and other points of turmoil. Market downturns happen all the time, with Hartford Funds noting that bear market conditions happen roughly once every 3.6 years (with notable gaps occurring between certain downturns in recent history). 

This means that if you're planning for your retirement with the help of a financial advisor, you are likely to experience your fair share of market uncertainty, perhaps as many as 10 bear or corrective periods of trading. A newcomer may be a significant asset in finding and managing a portfolio of high-performing stocks and marketplace leaders as they emerged to the forefront. However, more experienced traders are likely better poised to protect your assets during times of uncertainty.

Asking about the experience and track record of success that any financial advisor you're considering hiring can showcase is a great way to make sense of the background of stability that certain professionals may be able to provide with greater confidence and proven success.

Ask about qualifications

Qualifications are one of the backbone areas when it comes to hiring a financial advisor. Financial professionals must be certified in order to practice their craft. It may be tempting to ask an aunt or brother-in-law who you know has been investing for many years to manage your long-term financial planning, but without the qualifications that a professional financial advisor can leverage, you're putting yourself at risk. These financial professionals are registered with the SEC and are insured. This gives clients peace of mind when it comes to the security and stability of their investments. 

Similarly, a certified financial professional is someone who is measured in their approach to the marketplace and has considerable experience working directly with clients to understand their needs, position them for success as best as they can, and much more. By hiring a qualified financial professional, you are hiring a mentor, friend, and highly professional investor. Asking to see qualifications will give you a better understanding of the background and professionalism of any financial advisor you may be thinking of hiring to manage your portfolio.

Costs can vary widely among different fiscal professionals

One thing that should never go unasked is a question about the fee structure. The services provided by a financial advisor revolve primarily around making money. As a result, it is essential for you to understand how much this service will cost — considering that these costs will ultimately be subtracted from your ongoing profits. Costs can vary depending on the types of services you ask for from a professional advisor, and they can be wildly different percentages or set fees for management more broadly.

The fee structure puts a fine point on the profit you stand to make on your investments. There will always be some kind of fees associated with buying and selling investment assets. From index fund charges to the taxes you'll pay on capital gains each year, fees are critical to understanding your investment standing and must be factored into ongoing profit and loss calculations. The cost of a financial advisor can help you decide which professional makes the most sense for your needs (or even if a professional advisor is something that's warranted).

Specializations in market segments or asset classes can impact your decision in crucial ways

Another key facet in hiring a high-quality financial professional is an understanding of their specific strengths and weaknesses as it relates to market segments and asset classes. Some financial advisors have a considerable amount of experience in the real estate world, bullion space, or in the tech or energy sectors of the stock market. Bella Private Markets notes that a sliding scale exists, along which financial professionals may be immensely talented at diversification efforts across many different market segments (but lack nuanced analytical prowess in any particular space). On the other hand, a financial advisor may exhibit a dramatic depth of knowledge in a particular market segment or asset class.

Growth assets incorporate greater measures of risk, allowing them to progress at a faster rate but exposing investors to the potential for greater losses in the process. Therefore, a high-quality investment strategy involves strategic partnerships with professionals who are well-versed in the kinds of asset classes and market segments that you are seeking to invest in specifically. Key expertise and specializations that align with your goals can help propel your investments toward the greatest level of success possible.

Investment and advice strategy can vary

In the same way that investment professionals can be exceedingly useful in some market segments and asset classes and less so in others, these features are true for investors in different phases of their lives, as well. A young investor, for example, seeks to maximize growth potential because their investment portfolio will continue to grow for many years or even decades. Older investors who are nearing retirement or already in this phase will want a different type of portfolio management style. These types of investors are looking to increase dividend payments, infuse increasing stability into their holdings, and chase after other, similar priorities. 

The specific needs of your investment portfolio can have a serious impact on the specific financial advisor that you choose to work with in advancing these goals. Some financial advisors may be suited to a retired person who wants to maintain cash assets and dividend-creating potential in order to facilitate their lifestyle. These types of savers aren't looking for extreme growth but rather want to protect the principle of their investment so that it can continue creating dividend income and providing a stable platform for future plans.

Younger investors will seek higher degrees of risk in order to gain the upside potential that comes along with it. Depending on the specific experience and user profile of the typical investor served by a financial advisor, you may be at an advantage or disadvantage with particular options in the marketplace.

Frequency of account review (and potential rebalancing)

The frequency with which a financial advisor will review your accounts and potentially rebalance your assets for the greatest possible exposure to profits or loss prevention is another key aspect in this search for the perfect advisor. At a bare minimum, financial advisors should take a deep dive into their clients' portfolios on a twice-yearly basis. The markets can change rapidly and so some investors may hope for an advisor that takes a more hands-on approach and rebalances their portfolio on a quarterly or even monthly basis. Depending on your specific needs, this aggressive approach or a slower-developing option may be the right strategy. 

Speaking with financial advisors to determine how often they dig into the specifics of their clients' portfolios can give you a better sense of the type of their portfolio management strategy. Of course, greater active management leads to higher costs for the investor, so it's important to think through how often you actually want your assets reevaluated in order to balance both low costs and high profit margins.

It's also possible to set up a relationship with your financial advisor that incorporates both active management and personal direction. This can give you the opportunity to gain key financial insight from your advisor and to be part of the discussion surrounding your ongoing financial future. Instead of waiting for your portfolio manager to rebalance your assets, you can play a direct role in its ongoing success and direction.

Honesty and direct candidness are hot commodities

Another important feature of any professional financial advisor is their level of honesty and candidness. It's obviously important to hire a trustworthy professional, but honesty in the investment world isn't just about hiring someone who won't lie to you about their business practices. Here, you'll be looking for an investment professional who isn't afraid to share information on negative occurrences. Similarly, when discussing potential companies to invest in for fund strategies, you'll want to hire a professional who isn't afraid to tell you that your idea is a bad one.

A financial advisor is naturally someone who has more experience and a better understanding of the marketplace than you do. But some investment advisors are timid when it comes to telling their clients that their ideas aren't good. This becomes especially important for investors who want to focus their energy and attention on speculative types of investments like purchases in the tech or emerging markets sectors. These marketplaces move fast, and winners here are found through immense volumes of research and nuanced understanding. The same is true for other sectors, but in consumer goods, you are less likely to be looking for a new emerging player than you are to be buying blue chip companies that will underpin long-term portfolio stability. Candidness about investment strategy is a core component when selecting a professional to help you on your fiscal journey toward increased wealth.

Written contracts illuminate more than meets the eye

Lastly, the written components of any agreement are incredibly useful when evaluating the total package that any investment professional can provide for you and your needs. For one thing, it's impossible to explain an entire service model through e-mail or routine conversation. In order to develop a depth of understanding about expected services, rebalancing efforts, fees, and other costs, you'll need to look at the written contract that a financial advisor will provide. On the surface, written documentation about your agreement will give you a fuller picture of the relationship between you and a financial advisor that you're thinking of hiring. But this isn't the only benefit that comes through reading a written agreement document.

These documents can signal how a professional does business. Carefully reading terms and conditions can give you an understanding of the way any particular financial advisor will package and deliver reports about your accounts, seek approval for new purchases or sell orders, and can illuminate details about their personal approach to doing business. Drafting a contract shows a lot about the inner workings of a person's mind. Because of this, these final review tasks that come into play after you've selected any advisor to work with can reassure you that you've made the right choice or make it apparent that you're dealing with a financial advisor who may make themselves unavailable or generally distant at important moments in your relationship with them.