9 Essential Steps to Choosing Your Ideal Financial Advisor
By Mark Yatros
Did you know that by having a financial advisor guiding your retirement savings, you could substantially increase the amount you save?
It’s true, according to a study by Vanguard. The study found that a $500,000 investment led by a financial advisor would grow to $3.4 million in 25 years. At the same time, the study showed that a self-managed portfolio with the same investment would reach just $1.69 million – 50% less.
Another eye-opening statistic is that the National Financial Education Council says a lack of personal financial know-how costs the average American at least $1,300 a year.
I’m not saying all of this to pat myself or other advisors on the back; it’s just that we live and breathe finances and investing. I’m guessing you don’t have the time or inclination to become proficient in all things financial, and when it comes to money, it pays off to know more.
If you’re ready to have a financial advisor working with you, how do you find one that’s a good fit for you? I will outline nine steps to help you pick a financial advisor. While I hope you’ll give me and my team at Allegiant Wealth Strategies a chance, I want you to find the right fit for you.
I’d also like you to know that Allegiant Wealth Strategies doesn’t require our clients to have a minimum net worth before we work with them (unlike many advisors). We believe in working with you to build your wealth, no matter where you start.
Now, here are nine steps to help you select the financial advisor that’s right for you.
1. Determine your financial needs and goals
When you’re looking for a financial advisor, the first step you should take is to determine your financial needs and goals. Often, advisors specialize in different areas of financial planning, so knowing what you need will help you find the right fit. For example, one advisor may focus on retirement planning, while another may excel in investment management, debt reduction, or tax planning.
Are you looking to save for retirement, manage your investments more effectively, reduce debt, or all the above? By clearly identifying your needs, you can better evaluate potential advisors and ensure they have the expertise to help you achieve your objectives.
2. Understand the different types of financial advisors
Once you’ve identified your financial needs and goals, it’s important to know there are different types of financial advisors. Financial planners, investment advisors, and wealth managers each have their own areas of expertise. Financial planners typically help with a broad range of financial issues, investment advisors focus on managing your investments, and wealth managers (like our team at Allegiant Wealth Strategies) offer comprehensive services, including estate and tax planning.
Another key distinction is how advisors are compensated.
Fee-only advisors charge a flat fee or an hourly rate and don’t earn commissions from selling financial products.
Commission-based advisors, on the other hand, earn money from the financial products they sell, which can sometimes lead to conflicts of interest.
Fee-based advisors charge a combination of fees and commissions.
In addition to understanding the different types of advisors, it’s crucial to know about the fiduciary duty that comes with certain designations, like the Certified Financial Planner® designation. Advisors with a CFP designation are held to a fiduciary standard, which means they are legally required to act in their clients' best interests. This can provide an extra layer of trust and security, ensuring that the advice you receive is truly aimed at benefiting you, rather than the advisor's wallet.
3. Check credentials and qualifications
When selecting a financial advisor, it's crucial that you verify their credentials and qualifications. Ensuring your advisor has the proper certifications can give you confidence in their knowledge and trustworthiness. It also means they have undergone rigorous training and must adhere to high ethical standards.
Key certifications to look for include:
Certified Financial Planner®: This certification indicates that the advisor has completed extensive coursework in financial planning, passed a comprehensive exam, and is committed to ongoing education. And, as mentioned above, CFPs are also held to a fiduciary standard, meaning they must act in your best interest.
Chartered Financial Consultant®: ChFCs have completed advanced coursework in financial planning, covering areas such as insurance, income taxation, retirement planning, investments, and estate planning. Like CFPs, they must adhere to strict ethical standards and continue their education to maintain the designation.
Accredited Personal Financial Specialist: The PFS designation is granted to CPAs who are members of the American Institute of Certified Public Accountants. To earn this title, CPAs must complete at least 75 hours of personal financial planning education, pass a personal financial planning-related exam, and have at least two years of full-time experience in business or teaching.
Registered Financial Consultant: The RFC® designation is awarded by the International Association of Registered Financial Consultants. To qualify, advisors must have a college or graduate degree in financial services or an IARFC-approved designation or professional degree. Additionally, they must have at least four years of full-time experience as a practitioner or educator in financial planning or financial services. RFCs® must also meet licensing requirements, complete continuing education courses, and adhere to a code of ethics.
These certifications matter because they signify a high level of expertise and a commitment to ethical practices. Advisors with these credentials have proven their knowledge and skills, ensuring they are well-equipped to help you achieve your financial goals.
4. Research the advisor’s background and experience
Researching a financial advisor’s background and experience is essential. This way, you’ll know you’re trusting your finances to an experienced professional. Understanding their professional history can give you insight into their expertise and track record, helping you make an informed decision.
To check for disciplinary actions or complaints, visit the Financial Industry Regulatory Authority (FINRA) website and use their BrokerCheck® tool. This tool provides information on the advisor’s licensing status, employment history, and any disciplinary actions or complaints. The Securities and Exchange Commission website also offers resources to verify an advisor’s registration and any potential issues.
To find information about the advisor’s experience and track record, review their professional website, LinkedIn profile, and any available client testimonials. Look for details about their years of experience, areas of specialization, and notable achievements. Don’t hesitate to ask the advisor directly about their experience and for references from current or past clients.
5. Understand the advisor’s fee structure
When choosing a financial advisor, it’s essential to understand their fee structure. Advisors charge for their services in various ways, including hourly rates, flat fees, and a percentage of assets under management (AUM).
Hourly rate: This option can be good if you need specific, short-term advice.
Flat fee: Others may charge a flat fee for a comprehensive financial plan or specific services. This fee structure can provide clarity on costs upfront.
Percentage of Assets Under Management (AUM): Many advisors charge a percentage of the assets they manage for you, typically ranging from 0.5% to 2% annually. This can align the advisor’s interests with yours, as they earn more if your portfolio grows.
When comparing fees, consider the total cost of the advice you’re receiving. Ask potential advisors for a clear breakdown of their fees and any additional costs. Make sure you understand what services are included and whether there are any potential conflicts of interest.
Tips for comparing fees:
Request a detailed fee schedule from each advisor.
Ask about any hidden costs or additional charges.
Consider the value of the services provided relative to the fees charged.
6. Evaluate communication and rapport
Good communication and trust are essential when working with a financial advisor. You need to feel comfortable discussing your financial situation and confident that your advisor understands your needs and goals. Building a solid rapport with your advisor can lead to a more productive and satisfying relationship.
To assess an advisor’s communication style, pay attention to how they explain financial concepts and whether they listen to your concerns. A good advisor should be able to explain complex ideas in a way that’s easy to understand and should be patient in answering your questions.
Questions to ask during your first consultation:
How often will we communicate, and what is your preferred method of communication (phone, email, in-person)?
Can you provide examples of how you have helped clients with similar goals to mine?
How do you ensure that you understand your clients' needs and preferences?
These questions can help you gauge whether the advisor is someone you can work with effectively. Trust your instincts during these meetings – if something doesn’t feel right, it’s okay to continue your search for the right advisor.
7. Ask for references
When choosing a financial advisor, seeking feedback from current or past clients is valuable. Reference can provide insights into the advisor’s reliability, expertise, and client service.
When asking for references, request contact information for a few clients with similar financial goals. This way, you can ask specific questions about their experiences and the outcomes they achieved.
In addition to personal references, reading online reviews can be helpful. Websites like Yelp, Google Reviews, and industry-specific forums can provide additional perspectives on the advisor’s performance. Look for consistent themes in the reviews, both good and bad, to get a well-rounded view of the advisor’s reputation.
8. Consider the advisor’s approach and philosophy
When choosing a financial advisor, it’s important their investment philosophy and approach align with yours. Your advisor’s strategies and methods should match your financial goals, risk tolerance, and preferences.
For example, our philosophy at Allegiant Wealth Strategies is the preservation of assets. We believe it is not how much money you make when the markets go up; it’s how much you don’t lose when the markets go down. While this philosophy is most important in retirement, it also applies to your portfolio before retirement.
Questions to ask about their investment strategies and financial planning process:
Can you describe your investment philosophy?
How do you determine the right investment strategy for a client?
What is your process for financial planning, and how do you involve clients in the decision-making process?
How do you assess and manage risk in an investment portfolio?
9. Schedule a consultation
It’s important to meet with any potential financial advisor before you commit. A consultation allows you to get a sense of the advisor’s personality, communication style, and expertise. It’s also an opportunity to ask questions and determine if the advisor fits your needs.
What to expect during a consultation:
A discussion about your financial goals, current situation, and any specific concerns you have.
An overview of the advisor’s services, approach, and fee structure.
An opportunity to ask questions and get to know the advisor’s communication style and professionalism.
Key questions to ask:
How do you stay informed about the latest financial trends and changes?
What is your experience with clients who have similar financial goals to mine?
Can you provide examples of how you’ve helped other clients achieve their financial goals?
How often will we meet, and how do you communicate with clients between meetings?
Also, observe how the advisor listens and responds to your questions. Are they patient and clear in their explanations? Do they seem genuinely interested in helping you achieve your goals? Trust your instincts – if something doesn’t feel right, it’s ok to keep searching for the right advisor.
One last note
Choosing the right financial advisor is crucial for achieving your financial goals. Remember to take your time, research, and trust your instincts.
My team and I would be honored if you considered Allegiant Wealth Strategies during your search. For a free, no-strings-attached consultation, please contact us here or call (269) 218-2100.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.