August 22, 2023

Decode Financial Advice: How to Pick the Best Advisor For You

By Team Seneschal

Photo by Gustavo Frazaoon Shutterstock

Financial advisors can play a crucial role in helping you reach your financial goals.

But how do you pick the right advisor?

Do you need a financial advisor?

Determining if you need a financial advisor depends on your financial situation and goals. Here are some factors to consider:

  • The complexity of your finances: If you have a complex financial situation, like multiple sources of income, investments, and debts, or a significant change in your financial circumstances (like an inheritance),a financial advisor can help you organize, recommend investments and prepare a comprehensive financial plan.
  • Lack of financial knowledge: A financial advisor can provide guidance and education if you need help understanding financial concepts, including investing.
  • Time constraints: If you don't have the time to manage your finances, or if doing so isn’t the best use of your time, outsourcing this responsibility to a financial advisor can be prudent.

What services do financial advisors provide?

A financial advisor can provide the following services:

  • Personalized advice: A financial advisor considers your unique situation and provides customized strategies to help you meet your goals.
  • Risk management: A financial advisor can help you understand the risks associated with different investment options.  They can also identify insurable risks and assist in obtaining the proper coverage.
  • Retirement planning: Financial advisors provide valuable insights into planning for retirement by defining your goals and setting forth a plan to achieve them.
  • Coordination with other professionals: A financial advisor can coordinate with your trusts and estates attorney, accountant, insurance agent, and other professionals.
  • Regular reviews:  A financial advisor should regularly review your plan to determine progress toward meeting your goals and to adjust for changes in your circumstances.

What are the different types of financial advisors?

Understanding the different types of advisors can make your choice more informed:

  • Registered Investment Advisors (RIAs) are financial advisors registered with the Securities and Exchange Commission (SEC) or state securities regulators. They are held to a fiduciary standard, meaning they must act in your best interest.
  • Broker-Dealers:  These are financial advisors who work for brokerage firms and are registered with the Financial Industry Regulatory Authority (FINRA). They are held to a suitability standard, meaning they must recommend investments suitable for your needs and objectives, which is a lower standard than the fiduciary obligation of RIAs.
  • Insurance agents; These are financial advisors who specialize in selling insurance products, like life insurance, long term care insurance, and annuities.
  • Robo-advisors: A robo-advisor is a digital platform that provides clients with automated investment advice and portfolio management services. It uses algorithms and computer programs to analyze data and recommend investment strategies based on a client's financial goals, risk tolerance, and investment preferences. Robo-advisors typically offer low fees and minimum investment requirements, making them accessible to a broader range of investors who may not have sufficient assets required by many RIAs.

What credentials matter?

Credentials play an essential role in determining the competence and integrity of a financial advisor. Here are some types of certifications and qualifications you should look for:

  • CFP:  Applicants must meet requirements relating to ethics, pass an examination, have considerable experience providing financial planning advice, and meet specific educational requirements.
  • CPA:  Certified Public Accountants must be college graduates, pass a difficult examination and be current on tax law.  Many CPA firms have expanded into wealth management.
  • CFA:  Chartered Financial Analysts must pass a rigorous three-part examination covering ethics and professional standards, investment tools, asset classes and portfolio management, and wealth planning.  
  • MBA:  Holders of an MBA typically go to graduate school for twoyears of full-time study.  They have abackground in accounting, finance, and marketing, among other subjects.  
  • CDFA: Holders of the Certified Divorce Financial Analyst designation are trained to deal with the financial aspects of divorce.  They are required to have extensive experience and must pass an examination. There are also continuing education obligations.

How do financial advisors charge?

The most common ways financial advisors charge for their services are:

  • Commissions: Some advisors earn a percentage of the money you invest in certain products or transactions.  Many believe commission-based advisors have an inherent conflict of interest between the best interest of their clients and an investment product that pays them the highest commission.
  • Flat or hourly fees: The advisor charges a fixed amount or an hourly rate for their advice or services.
  • Assets undermanagement (AUM): The advisor charges a percentage of the total value of the assets they manage for you.

What questions should you ask a financial advisor?

Once you have shortlisted potential advisors, it's important to interview them. Here are some questions you should consider asking:

  • What is your experience in the financial industry?
  • What types of clients do you typically work with?
  • What is your investment philosophy?
  • How do you charge for your services?
  • Can you provide references from current or past clients?
  • How do you stay up-to-date with changes in the financial industry?
  • What is your approach to managing risk in investments?
  • What is your process for creating a financial plan for clients?
  • Can you explain complex financial concepts in simple terms?
  • How often  do you communicate with your clients, and what is your preferred method of communication?

These questions can help you better understand the financial advisor's qualifications, experience, investment philosophy, and communication style.

Final Thoughts

Selecting the right financial advisor is about more than just credentials or cost. It’s about finding someone who understands your unique financial situation and can work with you to create a plan that aligns with your goals and values. Your financial advisor should be someone who is a partner in your financial journey, someone you can trust, and someone who has your best interest at heart.


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