Hiring a wealth advisor can be one of the best financial decisions you will make. A diligent, conscientious, and knowledgeable advisor can help you protect and grow your assets in many ways. An advisor worth hiring should be able to provide guidance and insight into virtually every financial decision you make. Given the comprehensive nature of financial planning, it is crucial to choose wisely when hiring an advisor and to look for several specific qualities:
- Make sure your financial planner understands how all financial decisions relate to each other and takes the time to understand your priorities.
You may think an advisor is only for investment management, but investing is only one area of financial planning and should not be compartmentalized. A financial planner should advise with respect to not only investing but also to estate planning, tax efficiency, saving for retirement, budgeting for children’s education, insurance needs, and more. Your advisor should want to hear about you – your priorities, your family, your comfort level with investing, etc. The relationship you form with a wealth advisory firm is one you want to last a lifetime--one that your children might even continue—and you should form your new advisory relationship with that mindset. Make sure you take all the time you need to feel confident in the advisor’s ability to provide comprehensive planning advice that reflects your goals.
- Look for the Certified Financial PlanningTM professional designation, or CFP® credential, after someone’s name.
The CFP® designation means that person has met the education, experience, and character assessment requirements to become a Certified Financial PlanningTM professional. The credential reflects arguably the highest level of financial planning expertise. You deserve an advisor who has made a point to attain this high standard. Ongoing education and assessment are required every year to maintain the credential, ensuring that CFP® professionals are staying current and accountable. The CFP® credential also connotes a fiduciary duty to clients--a crucial quality.
- Demand the Fiduciary Duty.
Your financial advisor should be obliged to place your best interests ahead of his or her own and to make recommendations accordingly. You might be surprised how many advisors do not have to exercise a fiduciary duty when advising their clients. Ask explicitly whether your advisor has a fiduciary duty to you. If the answer is “yes,” ask “why?”, to make sure the advisor is either a CFP® professional or a Registered Investment Advisor firm, the two designations that will confer a fiduciary duty on that financial professional.
- Make Sure the Advisor Charges a Fee Based on Your Account Value.
You do not want to hire an advisor who earns commissions by selling you financial products such as annuities or life insurance policies. Such an arrangement creates a difficult-to-manage conflict of interest. You do not want an advisor who charges a flat fee because that person will earn the same amount no matter how your account performs. Your advisor should charge a fee that is a percentage of your account value. Such a fee-based or fee-only advisor has every incentive to work as hard as possible for you since that person’s compensation is tied to your account’s performance.
- Seek an independent Registered Investment Advisory firm.
Many firms are affiliated with large financial institutions and, as such, must reflect the investment policies of those institutions. Rather, you should engage an independent firm with a strong research and analysis team. That firm will collect all data and sift through it objectively. Then, the firm will make recommendations to their clients based on independent analysis of the data, instead of a directive from an investment bank.
If you follow these guidelines, you are more likely to find a trustworthy and capable advisor than if you go with a “friend of a friend” without asking these questions. Pacific Wealth Management® is a fee-based, independent Registered Investment Advisory firm where our CFP® professionals provide comprehensive financial planning guidance. Contact us to discuss how we can help you reach your financial goals.