Choosing the right type of investment or financial advisor can be a difficult task. When researching financial planning services, you want to find someone to work with long-term that also can provide the right type of service for your financial needs.
Whether it’s investment advice, estate planning, or structuring the right retirement plan, working with the right advisor can be the difference between meeting and exceeding your financial goals and falling short. Different advisors are going to specialize in different financial services and offer different financial products, and choosing the right one for your situation is crucial for success.
A fee-only financial advisor in the D.C. area at Brown | Miller can help you plan for any financial situation that may arise
How to vet a financial advisor
When vetting prospective advisors, you need to check on the fiduciary status of all potential advisors. An advisor with fiduciary status is legally required to act in the best interests of all of their clients and prohibits them from engaging in activities that could potentially be conflicts of interest. The interests of their clients must come first.
When trying to find a financial advisor, a great place to begin the vetting process is by using FINRA’s BrokerCheck tool. This handy tool can tell you whether or not a financial planner or advisory firm is registered to sell investments or offer any investment advice. The checker also will show you the advisor’s employment history and whether or not they have been the subject of any disciplinary actions or complaints from past clients.
Insurance agents may also call themselves financial advisors. As of now, it can be a bit more difficult to assess the validity of an insurance agent’s background. Unless the insurance agent is selling a product that is considered a security, they do not have to register with FINRA. A good rule of thumb is not to proceed with working with them if you do not feel comfortable.
Understand how advisors are compensated
Most investors don’t know much about their financial advisors. According to a study conducted by FINRA, 17% of investors have no idea what they are paying in fees, another 14% are unsure if they are paying any fees at all, and 60% of investors working with some type of financial professional believe that they are not paying for their services at all.
Furthermore, investors using tools to check on their advisor’s credentials, like BrokerCheck or Investor.gov, is below 10%.
Simply put, most Americans who hire financial professionals for investment advice or other financial services do not understand much about the ones managing their money and offering investment advice. There are several ways advisors get paid, and understanding them all is an important factor when deciding on the right investment advisor. Advisors will be paid in the following ways:
- Fee-only advisors will charge an hourly, annual, or flat fee for their services. They charge a percentage of your assets, generally called AUM, or assets under management. They can charge this fee on a monthly, quarterly, or annual basis. Fees typically start at around 1% but can go higher depending on the advisor.
- Commission-based advisors earn their income from financial products or investments that they sell to their clients. These types of advisors are typically paid by third-party financial companies that provide the investments or products that you buy. While this can be tempting since their commission comes from a third party as opposed to coming out of your investment account, this can also mean that they do not have your best interest in mind. These advisors do not have to abide by fiduciary rules as they are not bound by a fiduciary standard, meaning that there could be a conflict of interest.
- Fee-based advisors are paid from both fees and commissions, effectively operating as a combination of the previous two types of advisors. These advisors can charge management fees while simultaneously earning commissions on any investments or products sold, bringing a full range of investment options to the table that are available for their clients.
Specialized financial services for executives
There are many different types of financial advisors. Choosing the right one that aligns with your financial and personal interests is imperative to achieving your financial goals. As an executive, you are in a higher-earning position and would do well to work with an advisor who has experience working with other executives and clients in higher-earning positions.
Everyone’s financial situation, income, debt, and goals will be different, so working with an advisor that specializes in what you need advice and guidance in is necessary. Perhaps you have slacked on your retirement planning and need an advisor who can get you up to speed. You may also have just come into a significant amount of money and need help investing it according to your risk profile and setting up the right estate plan if something were to happen to you; there is an advisor for these situations.
Regardless of your needs and current financial standing, there is an advisor to provide the right guidance and advice. You need to vet them appropriately, get familiar with their compensation structure, and ensure that they act as a fiduciary to avoid a conflict of interest arising.