By Gary Meeks, RICP®
This article is intended to explore the reasons people seek out a financial advisor and hopefully provide some useful information if you are considering working with a financial professional.
Obviously, people who hire or pay fees or commissions to a financial professional expect to get some value out of the experience and ultimately improve their financial well-being. Financial advisors provide various services, including investment advice, retirement planning, estate planning, insurance services and full financial planning. Financial advisors may provide all or some of these services while others prefer to focus or be a specialist in one of these areas.
Often, a financial advisor doesn’t just help with a specific need, such as helping with a 401k rollover, but is also likely to help with other personal financial needs. Many financial advisors will complete a financial profile form in the initial meeting to identify other areas where a client needs help. These may include insurance needs, estate planning needs, tax strategies and retirement planning needs. If a financial advisor is not registered or qualified to provide advice on the above services, it is likely he or she will know someone who can and refer you to other parties who will help with your planning needs.
Some important reasons for hiring an advisor may include; discomfort handling financial issues, specific financial needs, behavioral coaching, recommended by friends/family, and quality of relationship with advisor.
So, how do you find the right financial advisor? Here are some things to consider; asking a trusted friend or relative may be helpful. You can also find a lot of information on the internet about financial advisors in your area; https://brokercheck.finra.org is a great source for information about an advisor’s background, licenses and registrations held and in what states. It also shows how many years of experience and the advisor’s employment history. Customer disputes/complaints and if the dispute was denied or settled are also available here, as well as federal and state securities licenses held.
Some financial professionals have furthered their training by obtaining a professional designation. According to Thomas Lavrakas and Forbes Advisor website, the top 10 Financial Certifications for financial advisors are: CPA: Certified Public Accountant, CFA: Chartered Financial Analyst, CFP: Certified Financial Planner, ChFC: Chartered Financial Consultant, RIA: Registered Investment Advisor, IAR: Investment Adviser Representative, CFF: Certified Financial Fiduciary, RICP: Retirement Income Certified Professional, CPWA: Certified Private Wealth Advisor, CLU: Chartered Life Underwriter.
To obtain these designations/certifications, the advisor must complete rigorous training and pay fees for the courses taken. I won’t go over what each certification means, but you can Google it and probably learn all you want to know. These designations are usually found on the advisor’s business card. You can also view the Forbes article referenced above by entering the following web address on your device/computer: https://www.forbes.com/advisor/investing/financial-advisor/top-financial-certifications/
Fiduciary: You may have heard talk or seen commercials touting working with an advisor who is a fiduciary. A fiduciary is someone who manages property or money on behalf of someone else. When you become a fiduciary, the law requires you to manage the person’s assets according to their best interests and not your own. Fee-based advisors who work for an RIA (Registered Investment Advisor Firm) work in a fiduciary capacity and are not compensating on a transaction based (commissions) pay system, but rather a fee for a plan or a flat fee as a percentage of assets under management. The advisor’s compensation is tied to the client’s investment performance as time goes on and not a commission per transaction. In this case, the advisor’s motivation is to have the account perform well as this will help his compensation as well. If the account grows, both parties’ benefit, and of course the opposite is true.
Some advisors offer both fee-based services and commission-based services. Often, fee-based advisory services require a minimum investment, such as $50,000, for example. Other advisors may offer only fee based or commission-based services.
According to Forbes Advisor, it’s more important than ever to have a solid financial plan in place. In fact, among those who work with a financial advisor, 84% said that doing so gave them a greater sense of comfort about their finances during the COVID-19 pandemic, according to a survey conducted in 2020 by Age Wave and Edward Jones.
Perhaps most importantly, a financial advisor can help you prevent making emotionally charged decisions to buy or sell investments. Do you need help managing your money? If you’re like many Americans, you might need a hand. According to the National Financial Education Council, a lack of personal finance knowledge costs the average American $1,300 per year.
In my opinion, the most important factors to consider in choosing an advisor are trust and expertise. Trusting that the advisor has your best interest in mind is invaluable. Education, qualifications, and proper licenses/registrations are also a must.
If you are searching for a financial advisor, I sincerely hope this article has given you some useful tools to assist you.
Gary D. Meeks, RICP®, is a registered representative offering securities and advisory services through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker dealer and Registered Investment Adviser. Cetera is under separate ownership from any other named entity. 90 West 100 North STE 6, Price, UT 84501 (435) 637-8160.
Sources: Forbes Advisor, https://www.forbes.com/advisor/l/investing-financial-advisor-what-is-fiduciary-duty/