Finding Your Ideal Investment Advisor

Finding the right investment advisor can be a daunting task, but it is important to remember that you are hiring an expert to work for you and manage one of the most sensitive parts of your life. Here are some key steps to help you choose the right investment advisor:

- Identify your financial needs and goals: Are you looking for help with retirement planning, investment strategy, debt management, or something else? Different advisors specialise in different areas, so it is important to find one that matches your needs.

- Understand the types of financial advisors: There are several types of financial advisors, including robo-advisors, fee-only advisors, fee-based advisors, and wealth managers. Each type has its own advantages and disadvantages, so it is important to understand which one best suits your needs.

- Know how advisors get paid: Financial advisors can charge in different ways, such as hourly rates, flat rates, annual percentage fees, or a combination of these. Understanding their fee structure will help you evaluate if their services are worth the cost.

- Research and vet the advisors: Ask for recommendations from friends and family, use online advisor matching tools, or search through professional organisations to find potential advisors. Once you have a list of candidates, be sure to check their credentials, background, and experience to ensure they are reputable and trustworthy.

- Meet and interview potential advisors: Don't be afraid to ask questions! Ask about their qualifications, experience, fee structure, investment philosophy, and whether they are a fiduciary (legally required to act in your best interest). This will help you determine if they are a good fit for your needs and if you feel confident in their abilities.

Identify your financial needs

Identifying your financial needs is the first step in choosing a financial advisor. Before you begin your search, it's a good idea to know what you need help with. Some advisors may specialize in areas such as debt management or investment advice, while others may offer holistic help with everything from savings goals to retirement and estate planning.

• Do you need help with budgeting?
• Do you want help with investing?
• Would you like to create a financial plan?
• Do you have savings goals that you need help reaching?
• Do you need to get your estate plan in order or create a trust?
• Do you need tax advice?
• Are you interested in holistic financial management?

Your answers to these questions will help you find the right type of financial advisor for your needs. It will also help you decide if you need an advisor at all. For example, if you only want assistance with investing, a robo-advisor can do that for a minimal fee. On the other hand, if you have complex financial needs and multiple concerns, you may want to find an online or traditional financial advisor.

Understand the types of financial advisors

Financial advisors go by many names, and it can be challenging to know which type of advisor to choose. Here is an overview of some of the most common types of financial advisors and what they do:

Investment Advisors

While "investment adviser" is the legal term used by the SEC, it is also used as a job title, and is commonly spelled "advisor". Investment advisors provide investment advice to clients and can also manage client assets directly. They are paid for their services and must register with either the SEC or their state, depending on their assets under management.

Broker-Dealers and Brokers

Broker-dealers buy and sell securities such as stocks, bonds, and mutual funds. They can act as brokers, dealers, or both. Broker-dealers are usually members of FINRA and must register with the SEC. Brokers can provide investment advice and counsel clients on their financial goals, risk tolerance, and investment options.

Certified Financial Planner (CFP)

CFPs have met rigorous training and experience requirements, passed a certification exam, and are held to high ethical standards. They offer financial planning services and may also be investment advisors. CFPs have a fiduciary duty to their clients, meaning they must act in their clients' best interests.

Financial Consultant

Financial consultants may hold various designations, such as Chartered Financial Consultant (ChFC). They have completed similar education requirements to CFPs and have a fiduciary duty to their clients. Financial consultants provide financial advice and may also offer investment advice.

Portfolio, Investment, and Asset Managers

These professionals manage client investment portfolios and may also offer other financial planning services. While they typically focus on investment portfolios, it is important to verify their registration as investment advisors through BrokerCheck.

Wealth Managers and Wealth Advisors

Wealth managers and advisors typically work with high-net-worth individuals and offer holistic financial planning services. They can assist with estate planning, tax help, charitable giving, insurance, and other areas of financial management.

Robo-Advisors

Robo-advisors are automated investment management services that use computer algorithms to create and manage investment portfolios based on an individual's goals, risk tolerance, and financial situation. They are a low-cost option for those seeking investment advice and often charge around 0.25% of the account balance per year.

Financial Therapists

Financial therapists combine behavioural therapy and financial coaching to help individuals improve their money mindset and address any negative emotions or trauma associated with money.

It is important to note that some financial advisors may wear multiple hats, and it is crucial to understand the differences between the various types of advisors before selecting one that best suits your needs.

Research the range of options for financial advisors

When researching the range of options for financial advisors, it's important to keep in mind that financial advisors aren't just available at your neighbourhood advisory office or bank. There are lots of ways to get financial advice. The option that's right for you will likely depend on your personal preferences, the services you need and your budget. Here are some of the options:

• Robo-advisors are digital services offering simplified, low-cost investment management. You answer questions online, and computer algorithms build an investment portfolio according to your goals and risk tolerance. Robo-advisors are low-cost, with some having no management fees or account minimums. They are a good option for those who need help investing for financial goals but don't want or can't afford a complete financial plan.
• Online financial planning services and advisors are the next step up from robo-advisors. They offer virtual access to human financial advisors. Basic online services might offer automated investment management and the ability to consult with a team of financial advisors. More comprehensive services will match you with a dedicated human financial advisor who will manage your investments and work with you to create a holistic financial plan. Online financial advisors are a medium-cost option, typically costing less than a traditional financial advisor but more than a robo-advisor.
• Traditional financial advisors can meet with you in person and will be able to help with all of your financial planning needs. This is often the highest-cost option, with advisors charging about 1% of your assets under management. Some advisors also require a high minimum balance. Traditional advisors are a good option for those who want specialised services, have a complex situation, or want to meet their financial advisor in person and develop a long-term relationship with them.

Consider how much you can afford to pay an advisor

When considering how much you can afford to pay an advisor, it's important to understand the different ways in which advisors charge for their services.

Robo-advisors, for example, are digital services that provide low-cost investment management. They typically charge an annual fee that is a percentage of your account balance, with fees starting at around 0.25% of the assets they manage for you.

Fee-only advisors, on the other hand, charge an hourly fee, a flat fee, or a retainer fee. The fee you pay is based on their financial advice or ongoing management of your investments, and it is separate from your investments.

Fee-based advisors charge a combination of fees and commissions. For instance, you may be charged an hourly rate for developing an investment plan, plus a commission on any investment products they recommend.

Traditional financial advisors usually charge a percentage of the amount they manage for you, with a median fee of 1%. However, this can vary depending on the size of your account, with small accounts often charged a higher percentage and larger accounts a lower percentage. Traditional advisors may also charge a flat fee, an hourly rate, or a retainer.

When deciding how much you can afford to pay an advisor, consider your budget, assets, and the level of financial guidance you need. If you have a small portfolio, an in-person advisor might be unnecessary, and a robo-advisor could provide the guidance you need at a lower cost. Conversely, if you have a complex financial situation, a robo-advisor may not be able to offer the level of service you require, and a traditional advisor may be a more suitable option.

Vet the financial advisor's background

Vetting a financial advisor's background is a crucial step in choosing the right investment advisor for you. Here are some detailed instructions on how to do that:

Firstly, check the advisor's credentials. Financial advisors may have different certifications and licenses, and it's important to understand what these credentials mean. Look for well-recognized standards such as Chartered Financial Analyst (CFA) or Certified Financial Planner (CFP). These designations indicate a high level of competence and a commitment to ethical standards. You can verify an advisor's credentials on the CFA Institute's website or the CFP Board's website. Additionally, run their names through the Financial Industry Regulatory Authority's (FINRA) free tool, BrokerCheck, which provides information on their employment history, licensing, regulatory actions, and complaints.

Secondly, understand how they get paid. Financial advisors can have different fee structures, and it's important to know how they make their money. Ask questions like, "Do they earn commissions on insurance sales or stock transactions?" or "Are they affiliated with a financial company that offers proprietary products?" Understanding their compensation structure will help you identify any potential conflicts of interest.

Thirdly, research their background and disciplinary history. Beyond credentials, it's crucial to look into their work history and any disciplinary actions or complaints. FINRA's BrokerCheck tool is a great place to start. It provides information on an advisor's employment history and any regulatory actions or customer disputes. Additionally, the Securities and Exchange Commission (SEC) has a tool to look up individuals named as defendants in SEC court actions or respondents in administrative proceedings. The SEC also has an Investment Advisor Public Disclosure website, which provides information on professional conduct and background, including registrations, employment history, and disciplinary events.

Finally, ask for referrals and check reviews. Asking friends, family, and peers for recommendations is a great way to find a financial advisor. Their firsthand experiences can provide valuable insights. Additionally, online advisor matching tools like Zoe Financial, Wealthramp, and Harness Wealth can help narrow down your options. These tools are typically free and can save you time in your search.

Remember, choosing a financial advisor is like hiring an employee. Take the time to interview multiple candidates, ask questions, and do your due diligence. By thoroughly vetting their background, you can ensure that you're selecting an advisor who is qualified, trustworthy, and well-suited to your needs.

Frequently asked questions