Many people have reexamined their finances since the pandemic.
While some are itching to dine out and travel again, others are looking to invest in their future. According to a recent survey from New York Life, Americans’ top financial goals include boosting their savings, planning for retirement and paying off debt.
To reach these and other goals, people often look for a financial advisor to help manage their money. However, there are many types of financial professionals to choose from, so it’s important to know what makes the right financial professional stand out.
“Americans often share more with their financial advisors than they do their doctors,” says Geoffrey Brown, CEO of the National Association of Personal Financial Advisors (NAPFA). “So, it’s important they have someone they can trust and who will always put their best interests first.”
Selecting an advisor is one of the most important life decisions you and your partner will make. When looking for the right qualities, you want your advisor to be:
1. A fee-only financial advisor
When selecting a financial advisor, it’s important to understand how they are compensated. Fee-only fiduciary financial advisors are paid directly by their clients for advice. The advisor does not receive commissions or remuneration from third parties, meaning they’re not going to sell you financial products that can rack up expensive fees and make you lose money. Instead, their compensation is based on an hourly rate, a percentage of assets under management, a flat fee or a retainer.
Commission-based financial professionals, on the other hand, may recommend investments with higher fees, riskier features and lower returns because they earn more money for the advisor, even if those investments are not the best choice for the client. Because of the conflicts of interest inherent in these transactions, these advisors may have difficulty putting their clients’ interests above their own.
“Before you select a financial advisor, always ask them how they’re compensated to help you understand the nature of the relationship. If they give you anything other than a straight answer, you should continue your search,” says Brown.
2. A fiduciary
Fiduciary is one of the key attributes you should look for when searching for an advisor. Financial advisors held to a fiduciary standard are required to act within your best interest, meaning they must disclose any conflict, or potential conflict, to their clients before and during the advisory engagement, adopt a code of ethics and explain their fee structure.
While finding an advisor that adheres to a fiduciary standard is important, some use the term loosely, which can make it hard to decipher who is a legitimate fiduciary. NAPFA has a tool that can help you research and find fee-only fiduciary advisors that are a good fit for you.
“As consumers of financial services, we all owe it to ourselves to remain diligent, to understand our options and the standards our financial professionals are held to,” says Brown.
3. Confident and proactive
Managing your finances can be stressful and time-consuming. That’s why having an experienced advisor is important. You can use educational background—such as an undergraduate and/or graduate degree in financial planning or financial services designations, including the Certified Financial Planner certification—to gauge expertise. In addition, you want someone who has a broad view of your assets and takes the time to learn about your goals and your worries. You also want to feel good about the recommendations your advisor gives you and know they will work hard to keep your goals on track.
4. Holistic in their approach
When you work with a financial advisor, you want to ensure the person is looking at areas beyond your investments. Unlike a broker, who is focused on selling specific products and investments, a holistic financial advisor will help you review your retirement, taxes, estate planning, education funding, insurance needs and overall budgeting. A fee-only fiduciary financial advisor can provide practical guidance and planning around your long-term financial goals and factor them into developing your overall financial plan.
Choosing to work with a financial advisor can be one of the best life decisions you make. Knowing what qualities make a transparent, reliable and objective financial advisor will allow you to find a professional who can help you achieve your financial goals.
For more information on selecting the right advisor for you, visit NAPFA.