Given the high stakes \u2014 your money \u2014 it makes sense that some would rely on a referral to find a financial advisor: 13% of Americans say an advisor recommended by friends or family members shapes how they manage their finances, and 12% say the same of an advisor their parents introduced them to, according to the survey. Others are shaped by an advisor chosen without recommendations from family or friends: Nearly a quarter (23%) of Americans cite a financial advisor they selected independently.<\/p>\n
Whether you found a financial advisor through your own research, based on a tip from a friend or a combination of both, here are three questions to ask yourself to determine if your advisor is a good fit.<\/p>\n
Are they a good communicator?<\/p>\n
When evaluating their financial advisor, many clients think about more than just money. You should, too.<\/p>\n
A 2023 study from Morningstar, a financial services company, found that \u201cclients fired their [financial] advisors for a number of reasons, not just due to cost and return performance, but also due to things like their relationship and lack of communication.\u201d Among clients who parted ways with their advisor, about one in five cited the quality of relationship as a reason.<\/p>\n
If good rapport with your advisor seems superfluous or hollow, think again. Your financial needs don\u2019t sit in isolation; they\u2019re likely a product of your personal story. Having someone who knows how to listen and communicate on your wavelength is a must. <\/p>\n
Ask yourself: Is your current advisor organized and quick to follow up? Do they reach out proactively, or are you always the one calling them? Have they spent time trying to understand who you are and what\u2019s important to you? If so, the relationship you\u2019re building now will likely be equipped to handle challenges in the future. If not, and you find yourself irked or misunderstood during routine exchanges, you\u2019re likely to be deeply frustrated when you\u2019re facing an emotionally difficult financial decision. <\/p>\n
Are their prices competitive?<\/p>\n
Money plays an important role in client happiness, but you may want to focus on the investment costs in addition to the outcomes. <\/p>\n
Sure, you want a sound investment strategy, and everyone hopes for solid returns year after year. But investing is full of surprises; nobody should expect their advisor to outmaneuver every market dip. <\/p>\n
Here\u2019s what you should expect: The best advisors have a competitive and straightforward price structure, and they steer clients toward investments with low fees. High costs dampen returns, even if the investment performance mirrors the market. According to the Morningstar report, high costs were the third most common reason clients fired their financial advisor. <\/p>\n
For example, some advisors charge a flat fee, like $2,500 per year, which you\u2019d pay like any other bill. Other advisors charge a percentage of the assets under management (AUM). A 1% fee on $500,000 of investments would result in a $5,000 annual charge. In this case, the amount is subtracted from your investment accounts. Some advisors use a combination of both types of fees. Both methods are legitimate; just be aware of pricing plans that operate differently when you compare.<\/p>\n
Once you have a grasp of the exact amount you\u2019re paying per year, it\u2019s reasonable to compare them to the competition. But the lowest price isn\u2019t necessarily what you should be after. Higher prices could be justified by a wider range of services they provide, like helping with complex tax planning. <\/p>\n
Ask yourself: Do you know what you\u2019re paying your advisor, or do your eyes glaze over when this information is shared with you? It\u2019s your advisor\u2019s job to be transparent about costs, but not to be judicious about the price you\u2019re paying \u2014 that\u2019s on you. <\/p>\n
What certifications do they have?<\/p>\n
In the financial industry, there are a wide range of job titles<\/a> \u2014 including money coach, wealth manager and financial therapist. Technically, \u201cfinancial advisor\u201d isn\u2019t a legal designation, so anyone can call themselves a financial advisor. This means you should see what your advisor\u2019s actual certifications are.<\/p>\n One well-respected certification in the financial industry is the certified financial planner designation (CFP). All CFPs are required to act as a fiduciary. That’s good news for clients \u2014 it means the advisor is legally required to work in your best interest and eliminate or disclose any conflicts of interest. A CFP designation also indicates the advisor has received a thorough financial education and passed a rigorous exam.<\/p>\n Not all fiduciaries<\/a> are CFPs. You can also check if your advisor is a registered investment advisor, using the Investment Adviser Public Disclosure website<\/a>. Registered investment advisors are also required to be fiduciaries. If you\u2019re still unsure whether your financial advisor is a fiduciary, ask them. <\/p>\n Ask yourself: Does your advisor have a certification that requires them to act in your best interest, rather than focusing on maximizing their profit? If not, the lack of an external standard doesn\u2019t mean the advisor lacks standards themselves, but it does make it harder for consumers to sort out exactly what those standards are and how their advisor would be held accountable for not upholding them.<\/p>\n
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