Choosing a financial advisor can be intimidating, especially if it’s your first time doing so. This person is going to have a significant impact on your financial future — so how do you know which one is right (and which one is wrong) for you and your specific financial needs?
Before you start shopping around, consider these eight factors for choosing a financial advisor, so you can find an option you’re comfortable with.
1. Decide what services you need
Before you start looking for a financial advisor, decide what you want them to do for you. Make a list of your money-related issues and questions, then rank them from highest priority to lowest priority. Take at least a week to brainstorm and try to be as specific as possible.
If you meet with a financial planner and don’t know what you’re looking for, you’re more likely to be disappointed and frustrated. And when that happens, you may be less likely to seek out help again. It’s like seeing a therapist without knowing what your issues are.
A typical financial advisor may offer the following services:
- Investment advice and planning
- Debt payoff advice
- Tax planning
- Estate planning
- College planning
Once you know exactly what you’re looking for, you can start finding a specific planner.
You may discover that you actually need to find another type of professional. For example, if you only have tax planning questions, instead of financial planner, a CPA (Certified Professional Accountant) may be a better fit.
2. Figure out what you can afford
Professional financial planning isn’t cheap. And depending on the type of services you choose, you may wind up paying hundreds or even thousands of dollars.
Go through your budget and decide what you can afford to spend on a financial planner. A basic financial plan, which may include specific investment advice, has a median cost of $2,250. The hourly rate for a financial planner is generally between $200 and $400.
If you truly have no money to spare, you can reach out to financial planners and ask if they offer any pro bono services. They may be able to offer suggestions or recommend an alternative, like a robo-advisor.
3. Look for a fiduciary
The most important quality you need in a financial planner is a fiduciary duty to their clients. Being a fiduciary means that they are legally obligated to recommend the best products and services for your personal situation.
Some financial advisors only have a suitability threshold, which means their recommendations only have to be suitable for you. A fiduciary standard means the financial planner has to recommend products that are best for you, even if it results in the financial planner making less money.
Financial planners who do not have a fiduciary standard may recommend investments with high fees, because they will get a bigger commission. But on your side, those investments may not outperform other investments that have a lower commission.
When you are interviewing potential candidates, ask them if they are a fiduciary. If they dance around the question or say that it’s not necessary to be a fiduciary, leave immediately. There are thousands of financial planners who are fiduciaries, so you don’t need to settle for one who isn’t.
4. Search through reputable websites
There are many professional networks where you can find qualified financial planners. The National Association of Personal Financial Advisors (NAPFA) has a list of fee-only planners that have a fiduciary duty.
Planners who typically work with young individuals may be part of the XY Planning Network. Certified Financial Planners are one of the highest designations that a financial advisor can have, and you can find an official Certified Financial Planner here.
If you already have an investment account with a company like Vanguard, Fidelity, or Charles Schwab, they may have their own advisors who can help you. Depending on their fees, this may be a less expensive alternative to hiring an independent planner.
Read more: How much do financial advisors cost?
5. Verify their credentials
Even if you find a financial planner from the networks listed above, you should still double-check they don’t have any major red flags or infractions on their record. Use sites like FINRA’s BrokerCheck and the SEC’s Investment Adviser Public Disclosure website.
If you notice any issues, you can click through to learn more about them. If a financial planner is not listed on the SEC’s or FINRA’s website, it may mean that they don’t have the right certifications to provide financial advice.
If you found a financial planner through a friend or family member, it’s even more crucial to look them up online before hiring them. Doing your own research to verify they’re a legitimate advisor is crucial, even if they come with a glowing recommendation.
6. Schedule a free consult
Most financial planners will let you schedule a free introductory session, where you can ask questions about their background, services, and more. These sessions can help you figure out if your personalities are a good fit and if they can answer your questions.
Use this session as a vibe check and to learn more about the planner. If you have any lingering questions after the call is over, send them an email. While you can bring specific financial questions to this meeting, some may be unable to answer them in the time allotted.
7. Compare multiple planners
Because financial planners often offer one free basic visit, you can meet with several planners before finalizing your choice. Take the time to compare planners so you can truly find the best fit. If you settle for a planner who you don’t have a good rapport with, you may be hesitant to take and implement their advice.
If you don’t click or mesh with a planner, move on to the next one. Remember, a financial planner is someone who you will ideally have a long-term relationship with.
8. Don’t get locked into your financial planner
Every financial planner has their own list of specialties, and as you get older, your needs may change. While some financial planners can grow with you, you should also not hesitate to find a new one when the time comes.
For example, if you start your own business, you may need a planner who works with entrepreneurs. If your current advisor doesn’t do that, it may be time to replace them with someone who does.
You can be honest and let them know why you’re switching. They may even have a recommendation for someone who is better suited. If they don’t, then you can follow the steps above to find your new advisor.
Hiring a financial planner is a big decision. You want to be sure to take your time and find someone who you can trust and who has your best interests at heart. With these tips, you should be well on your way to finding the right financial planner for you.