How to Choose a Financial Advisor

Financial planning has been something most of us postpone but like holiday shopping or preparing our taxes we know we need to do it but sometimes it ends up on the back burner. When that time comes and it’s time to choose a financial advisor to assist and guide you through the complex financial terms, rules, investments and strategies it’s tough to know who the right person for you is.

One consideration you will want to look into is how an advisor is compensated. The two main ways to compensate your advisor is to pay a fee or to pay a commission.

Fee-Only Compensation

A Fee-Only financial advisor charges clients directly for his or her advice and/or ongoing management. No other financial compensation is provided, directly or indirectly, by any other institution. Fee-Only financial advisors are selling only one thing their advice. Some advisors charge an annual fee while others charge an annual percentage, based on the value of the assets they manage for you. Lots of individuals like this option as they feel there is less conflict of interest when an advisor makes a suggestion to buy or sell something. On the other hand some individuals feel they do not get the service or advice they deserve because once they sign up for this program the advisor gets his or her fee no matter what so some clients feel the advisor has less interest in managing their accounts.

Commissions

This type of advisor is not paid unless a client buys (or sometimes sells) a financial product. Many commission-based advisors are well-trained and well-intentioned. But the inherent potential conflict could be greater then the fee based advisor. Having said that some investors feel they get more attention and advice and with this type of advisor as he or she is constantly looking at their accounts. They as the client can then choose not to pursue the suggestions being made to them but now have options to consider. Having said that, an advisor who is compensated solely through commissions could be said to have a conflict of interest when making recommendations.

Many individuals ask friends and family for suggestions and referrals as “trust” is a big factor in choosing someone to help manage your money. Nowadays most brokerage firm, banks and credit unions all have very similar investment products and strategies to offer their clients so the playing field is pretty even when it comes to available products and services. With that in mind again it typically comes down to who you feel the most comfortable with. For some comfort comes in the form of the”connection” they feel or feel they will have with an individual, for others it may be experience and knowledge, while some may prefer an advisor with similar passions or hobbies. Every individual is unique and different and so is every financial advisor, which is why it’s advisable when searching for an advisor to meet with more than one to get a feel of the different investment philosophies, services and kind of person each one is.

Hope this helps in your process of choosing a financial advisor.