How To Find A Financial Advisor
Big thanks to Daniel Milks, CFP® and founder of Woodmark Wealth Management for all his help on this one. He’s a great guy and an excellent resource to turn to if you’re looking for a financial advisor. Check out his website at www.woodmarkwealth.com.
A financial advisor can play an important role in helping you manage your money. They help you make the right decisions and provide access to resources that you never knew existed.
This isn’t to say that all advisors are created equal, though. Different advisors are going to have different philosophies, experiences, and expertise.
If you’re looking for an advisor, there are a few universal things to look out for. It’s also important to make sure whoever you choose aligns with your values and your goals.
Just because your parents use him or he comes recommended from your uncle doesn’t mean he will be a good fit for you. You need to pick an advisor who will help you live a life that excites you, not one who will get you further from it.
Do You Even Need A Financial Advisor?
I want to start off by saying no, not everyone needs a financial advisor. But a lot more people need one than they realize.
Comprehensive financial advisors do a lot more than picking the right investments for your risk tolerance and goals. A good advisor will help you navigate murky financial waters, understand your taxes and lessen your tax burden. They'll even set you up for a comfortable retirement.
So how can you know when it’s time to seek the help of an advisor? There are a couple tell-tale signs.
You Aren’t Sure Where To Begin
Finances are complicated. It’s difficult enough to manage your own budget. It’s pretty easy to get overwhelmed when entering the world of investments, taxes, and insurance.
If you find yourself knowing you need to have a lot of those things, but have no idea how to get started, a financial advisor may be worth considering.
Advisors will work with you to develop a comprehensive financial plan. They’ll cover everything from your investments to your retirement to saving for your kids’ college funds. A lot of advisors will work with you to develop this plan for a one-time, upfront fee.
Make sure you ask your potential advisor what services they provide. Many investment managers will include this Wealth Plan in their ordinary fee for advising.
An advisor can help you lay the groundwork so you can get started on your own. They’ll provide the education and resources you need to make good decisions with your money.
You Don’t Want To Spend Hours Educating Yourself
Advisors are also great for people who want to be a little more hands-off with their money. Personally, I love to dive in deep. I’ll spend hours and hours researching investments, options, bank accounts, insurance, and even taxes. I can’t get enough.
But I know that not everyone is a nerd like me. In fact, I’d venture to guess that most people reading this aren’t. Most people want a set-it-and-forget-it strategy for their money.
Do you want to know that your money is working for you and helping you reach your goals, but don’t want to put in the legwork? Finding a financial advisor could be a good move.
Financial advisors can work with you and tailor a plan to your specific goals. They’ll manage the money for you and make sure it’s doing what it’s supposed to.
In other words, working with a financial advisor can free up your time and energy to get out into the world and live the life you want. Doesn’t that sound great?
Questions About Their Background
I’ve painted a pretty rosy picture of financial advisors so far, but the truth is a lot more complicated. There are definitely things to watch out for and stay away from.
Sometimes, it’s an advisor who is fantastic for a different type of client. Other times, it’s a bad apple. There are a few questions you should always ask a potential financial advisor before agreeing to work with them.
If you don’t like the answers or feel sketched out in any way, don’t give that person your money.
Financial advisors should always be completely transparent with you. It’s your money after all.
Are You A Fiduciary?
A fiduciary is someone who is legally and ethically bound to put your interests first. This should be the number one question out of your mouth, and for good reason. Not all financial advisors are fiduciaries.
Some financial advisors get commissions for recommending particular products to their clients. This creates a perverse incentive, where the advisor is more likely to recommend a product that pays them a higher fee, even if it isn’t in the best interest of the client.
This isn’t to say that financial advisors who work on commission are evil or out to rip you off, just that their interests don’t have to align with your own.
You place a lot of trust in your financial advisor. You want to make sure they have your best interests in mind when managing your money and recommending things to you. Ensuring they are a fiduciary is the only way to guarantee that.
Make sure the person you’re paying to manage your money has the same interests as you.
What licenses or certifications do you have?
Asking about certifications can give you a baseline understanding of what the financial advisor can do for you. Different advisors hold different licenses, and there are varying levels of certification.
The gold standard is the Certified Financial Planner (CFP®) designation. This isn’t to say that a financial advisor with a different certification couldn’t be the right fit for you.
Whether you want to cover estate planning, retirement, life insurance, taxes, or some other complex financial topic, it’s important to find a financial advisor who is licensed in your specific needs.
If you’re looking for life insurance, you don’t want to go to an advisor who specializes in retirement planning.
A big reason your financial advisor's certifications are important is the continuing education requirements. To remain certified, advisors have to stay up to date on all the boring financial stuff that changes every year.
This ensures the advisor is always able to provide you the most relevant information.
How much do you communicate with your clients? What kinds of things do you share?
Nobody wants to get left out in the cold, especially when it comes to their money.
At the same time, you’re hiring a financial advisor to do the work for you. You don’t want to get bogged down with constant emails and phone calls.
When you’re interviewing financial advisors, make sure to ask about their communication style. You want to know enough to know where your money is going, but not so much that you might as well not be paying them.
Financial advisors should always be completely transparent. They should share their knowledge and insights with you, and allow you to make the decisions.
Ask if your advisor communicates via email, phone, or even text. Do they have an online portal they use to share real-time information with you?
How often do they meet with clients? Are those meetings in-person, or do they meet virtually?
If you’re looking for a lot of hand-holding, make sure you find a financial advisor who works that way. On the flip side, don’t pick an advisor who will annoy you with how often they reach out.
You need to work closely with your financial advisor to make a wealth plan that works for you. Make sure their communication style matches what you’re after.
Most importantly, no matter how often they communicate, make sure they answer every question you have about your money. Don’t stay in the dark about what your advisor is doing.
Questions About Their Financial Philosophy
Questions about your financial advisor’s background are important. But maybe more important will be questions about their financial philosophy.
You’re paying them to manage your money, after all. You want to make sure they’re doing it in a way that lines up with your own financial goals and interests.
Do you have many clients like myself?
There are a lot of different paths to take with wealth management. It all depends on the individual.
A financial advisor with clients in similar money situations to yourself is probably best qualified to help you get where you want to go.
You wouldn’t go to a brain surgeon with a stomach ache. Don’t go to a financial advisor with a focus on an area that isn’t relevant to your situation.
Find a financial advisor who knows how to help people like you get where you want to go. Maybe they specialize in married couples in their early 30s who want to retire within a decade, or divorced people in their 50s looking to set their children up for financial success.
There are different strategies to take depending on your unique income, net worth, and debt situations. Going to a financial advisor who tends to work with people like you guarantees you’ll find someone who is up to date on what financial strategies work best for you.
How would you help someone in my position to reach their financial goals?
Just because an advisor works with people with similar backgrounds to you, doesn’t mean those people have the same goals.
Ask any potential financial advisors how they’d help you get where you want to go. They’ll probably only give you general advice because they won’t know your exact situation initially, but that’s okay.
Trust your gut. If the things they’re saying don’t align with your goals, it’s okay to walk away. Finding a financial advisor is one of the most important money decisions you can make. You need to feel good about your choice.
A potential advisor should be able to paint a clear picture of how they’ll help you get from where you are now to where you’re trying to go.
What is your investment philosophy?
Ask 10 people what the best way to invest is and you’ll probably get 12 different answers.
Investment strategies are as numerous as the stars, and this doesn’t change just because you’re talking to financial advisors.
Some strategies are tested with proven results, while others are, to put it nicely, a little more novel. While there are no guarantees with investing, you should find a financial advisor who can articulate their investment philosophy.
They may use big words, and that’s okay. Ask them to break it down for you in more simple terms. Any advisor worth their salt should be able to explain their investment philosophy in a way you can understand.
If you already know you’re partial to a particular style of money management, great! Look for a financial advisor who will be true to that style.
Even if you don’t know what investment philosophy you prefer, you can still look for a financial advisor with a clear, proven strategy. Find someone who can explain how they’ll manage your money, and why that’s good for your unique situation.
Conclusion
Finding a financial advisor is not a decision that should be taken lightly. They will play an important role in managing your money. You need someone who you trust and who will do a good job.
Knowing what questions to ask is a great place to start. Once you know how to find a financial advisor, you’re well on your way.
All you have to do is get out there and start interviewing!