Choosing a financial advisor to help manage investments is an important decision for many consumers. With the wide range of financial products and services available, it can be overwhelming to evaluate advisors and determine if they have the appropriate skills, experience, and integrity to manage your money. This article provides key factors to consider when reviewing financial advisors to find one you can trust.
Check advisor credentials and compliance history
Legitimate financial advisors should hold recognized industry qualifications such as the Certified Financial Planner (CFP) designation. Advisors should also be registered with regulatory bodies that oversee investment advisors. Review an advisor’s public registration records to check they do not have a history of client complaints or disciplinary issues which could indicate problems down the track.
Understand how the advisor is compensated
Financial advisors earn money in various ways, such as charging hourly fees, fixed fees, or taking a percentage of assets under management. Some also earn commissions by selling investment products. Understanding exactly how an advisor is compensated removes potential conflicts of interest and helps determine if their incentive structure aligns with your investment goals.
Ask for client references and read online reviews
Don’t be afraid to ask an advisor for client references you can contact. Also search for online client reviews of the advisor’s services. Glowing reviews and feedback indicate the advisor provides good client experiences. However, an absence of reviews does not necessarily indicate poor service.
Interview multiple advisor firms before deciding
Much like any major purchase decision, it is wise to interview multiple financial advisors before choosing one. Prepare questions ahead of time covering their services, fees, and investment philosophy. This provides comparison points to ultimately determine which advisor is the best match for your personal financial situation.
Start with limited assets to test the relationship
When first engaging an advisor, only provide a small portion of your total assets under their management. Monitor their investment approach and reporting standards over a number of months. This effectively serves as an initial probationary period to ensure you feel comfortable trusting the advisor with your hard earned money before increasing their level of access.
Vetting financial advisors thoroughly before establishing an investment management relationship is vital. Focus the review process on advisor qualifications, compensation model, client feedback and personal rapport during multiple consultations. Test the relationship initially by only allowing the advisor restricted access to a small portion of your assets.