Perhaps the pandemic has altered your finances, or you’re spooked by the market’s current volatility. Or you’re determined to make the right money moves as you marry, weather a divorce, buy a new home or transition to retirement.
Whatever the reason you’re thinking about your finances, finding professional advice can put your mind at ease. When Herbers & Company surveyed 1,000 random American consumers, the results showed that individuals who’ve hired a financial professional are statistically happier than those who haven’t. One element of happiness, the study points out, is a person’s ability to meet their needs and those of their families.
Identifying qualified professionals in your area should be simple. You can search for them at , , or . These websites are run by the Certified Financial Planning Board of Standards (FPB), the Financial Planning Association (FPA), and the National Association of Personal Financial Advisors (NAPFA), respectively. On each, you’ll find information about an individual’s certifications, specialties and compensation styles.
The challenge will be vetting potential candidates to find someone who suits your needs. Be prepared to wade through various titles and an alphabet soup of credentials. Consider these steps as you begin your search.
1. Clarify what you want
“First, do a bit of soul-searching about what you’re looking for,” says Christine Benz, director of personal finance and retirement planning at Morningstar. “Do you have a specific issue or problem you need help with? Are you seeking mainly investment advice, or help with your whole financial life—investments as well as tax planning, household budgeting and retirement planning, on an ongoing basis?”
2. Distinguish between categories
Narrow your search down by advisor category, suggests James Lee, CFP, president-elect of the FPA. “For example, a broker or registered representative can help you buy and sell securities. They are not required to act as a fiduciary—someone who must act in your best interests, rather than their own, avoiding any conflict of interest.”
Two other categories—financial planners and financial advisors—may be investment advisory representatives (IARs) who work for investment companies and are licensed and authorized to provide investment-related advice. They are required to act as fiduciaries.
While there are differences, you will find overlap between financial planners and financial advisors.
Generally, a financial planner helps individuals identify and achieve a broad range of long-term financial goals, tax and estate planning, debt management, saving for a child’s college education, the down payment for a home, or for retirement.
A financial advisor may help with these issues, but also provide life insurance, real estate, or accounting services, and help place short-term trades.
3. Look for standard credentials
In addition to different types of advisors, there are different designations and industry credentials that are governed by professional organizations that impose educational and ethical standards.
Perhaps the best known is the certified financial planner (CFP), who favors a holistic approach to financial planning. Others include the chartered financial analyst, (CFA), an individual who specializes in investment analysis; and the chartered financial consultant, (ChFC), who handles planning in a variety of areas, including estates, insurance, retirement, income tax, asset protection and employee benefits.
In addition to the CFP credential, you may want to find a professional with expertise in the area you need most, Lee says. “For example, a Certified Divorce Financial Analyst (CDFA) has specialized knowledge on the financial aspects of a divorce. A Certified Retirement Counselor (CRC), a Chartered Retirement Planning Counselor (CRPC), or a Retirement Income Certified Professional (RICP) can help with retirement issues.”
4. Consider the fee structure
“Regarding fees, common options include paying a percentage of your assets under management; monthly or quarterly flat subscription fees; commissions; fixed fees for services; and hourly rates,” says Joseph Maugeri, CFP, managing director, corporate relations, at the CFP Board. “The payment options will largely be a function of the type of services you need.”
To find out how a financial professional is compensated, Maugeri recommends requesting their “Form CRS,” or Customer Relationship Summary. “Financial advisors and brokers are required to provide a Form CRS to prospective clients, which contains information such as services, fees, conflicts of interest and any disciplinary history.”
5. Ask about investment philosophy and portfolio minimums
It’s also essential to understand the advisor’s approach to managing investments, which must match your own, Benz says. “If you’re dedicated to index funds, for example, then don’t choose someone who picks stocks or uses expensive actively managed funds.” When you meet in person or via video conference, have them describe their philosophy. Can they explain it clearly?
“In addition, some financial professionals prefer to work with clients with assets in a particular range,” Maugeri adds, “So it is important to find one who is accepting new clients at your level of investable assets.”
6. Assess the “fit”
In the end, your personalities must mesh, Lee says. “Find a professional who listens well, asks questions and explains their services and fees to your satisfaction.” Trust and communication are key, Maugeri concludes. “You will be sharing your life goals, values and priorities. Both of you should be able to speak openly and honestly and enjoy each other’s company.”
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