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How to Pick a Financial Advisor

It’s a decision that could significantly impact someone’s wallet ― is now the right time to invest?

If someone feels it might be the right time to get into the game, one of the best decisions they can make is to hire a financial advisor. This person will know the ins and outs of the stock market, know which stocks may be considered higher risk than others, and should do everything in their power to help their client reach their financial goals. So what factors do you need to consider when choosing a financial advisor?

The Ultimate Outcome

When meeting with a financial advisor, one of the first questions they should ask a potential client is what they hope to achieve by investing. Is the goal to have more cash flow now, save money for retirement, or something else? There is no wrong answer, and a financial advisor should be an expert in the type of investing the client needs to meet their long-term financial expectations.

The Different Types of Financial Advisors

Not all financial advisors are the same. In fact, anyone can call themselves a “financial advisor” without having to pass a standardized test or national qualification. This can make the situation murky if an individual isn’t sure where to start when finding a financial advisor.

Individuals looking to begin their investing journey should consider whether the financial advisor they are talking to is bound by fiduciary duty. Fiduciary duty is when the financial advisor is legally bound to work for their client’s best financial interest. This is typically a requirement for most financial advisors, both on paper and morally, but not all abide by this standard.

Different types of financial advisors include:

  • Fee-Only ― this is someone who is compensated only by the fees paid directly by clients, not through commissions, kickbacks, or referral fees from other financial service providers. Fee-only financial advisors typically charge an annual retainer fee or an hourly rate for their services. Some also charge a percentage of assets under management (AUM). There are many benefits to working with a fee-only financial advisor, including receiving unbiased advice, avoiding conflicts of interest, and paying only for the services you need.
  • Commission-based ― this is a professional who is compensated by the commissions they earn from selling financial products. A commission-based financial advisor may also receive kickbacks and referral fees from other financial service providers. This advisor typically works for a broker-dealer firm or insurance company and may have conflicts of interest. Commission-based financial advisors usually charge higher fees than fee-only advisors. They may also sell products not in the client's best interest to earn more commissions. However, there are some benefits to working with a commission-based financial advisor, such as having access to a wide range of products and services.
  • Registered Investment ― a Registered Investment Advisor (also known as an RIA) provides advice on investing and managing money. RIAs are held to a fiduciary standard, which means they must act in the best interests of their clients.
  • Robo-Advisor ― this is when advice and investment recommendations are calculated through computer algorithms. Robo-advisors are typically much cheaper than actual financial advisors and can be a good option for people who don’t need or want comprehensive financial planning advice. Some benefits of working with a Robo-advisor include lower fees and the ability to start investing without a lot of money. However, those who want to tweak investments or have a significant amount of money they are looking to invest may want to avoid this type of advisement.

Questions to Ask a Potential Financial Advisor

Before hiring a financial advisor, investors should ask the following questions:

  • How are you compensated?
  • Do you have any conflicts of interest?
  • What are your qualifications?
  • What is your experience?
  • What services do you provide?
  • What are the fees for your services?

Before hiring a financial advisor, investors should understand all the fees and potential conflicts of interest. Choosing the right advisor is an important decision that can impact their financial future.

Hired a Financial Advisor Who Made Bad Decisions?

Not all financial advisors are perfect, but some intentionally make bad decisions. If your financial advisor was negligent or purposely misconducted themselves differently, you need a securities litigation lawyer who will fight for you.

The experienced team at Weltz Law has helped our clients take down irresponsible financial advisors so others don’t fall victim to their schemes. We have helped other investors get vengeance and want to help you. Contact us to set up a free consultation. (877) 905-7671