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Do you have a good financial advisor?
Imagine waking up one day to find your life savings gone and, even worse, discovering it disappeared at the hands of the person you trusted the most: your investment advisor. That tale of terror can keep you from ever trusting your hard-earned dollars to anyone!
But if fear is getting the best of your future, it’s time to regroup. The truth is, most financial advisors are not crooks—they actually have your best interests at heart. Here’s how to make sure your advisor is someone you can trust.
Be Confident About Your Retirement.Find an Investing Pro
A great place to start is with the people you trust. Referrals can provide valuable insight into an advisor’s willingness to provide information and instruction on how to manage assets. This is one of the top characteristics workers look for in a financial advisor according to a recent retirement confidence survey by the Employee Benefit Research Institute.(1)
A good financial advisor should do more than just oversee your investments. So, when you’re seeking referrals, be sure to inquire about all the services the financial advisor offers. Ask about:
- Real estate planning
- Long-term care planning
- College savings
Of course, don’t choose an advisor on referrals alone. The next few steps will help you determine if the advisor you select is right for you.
Check for Red Flags
Now it’s time to put your detective hat on and do some research. You don’t want to entrust your money to someone with a shady history. Luckily, regulators make it easy to dig deeper by requiring investment advisors to file a Form ADV. The Form ADV consists of two parts and provides detailed information on advisors, including:
- Business practices
- Educational and professional background
- Services, fees and strategies
- Conflicts of interest
- Negative events such as disciplinary actions, criminal charges, and customer complaints
You can request an advisor’s Form ADV through the SEC’s Investment Adviser Public Disclosure (IAPD) website.(2)
Look for the Right Experience
If there’s one thing you can expect from the market, it’s a roller coaster ride of highs and lows—sometimes all in one day! But pulling all your investments at the wrong time can ruin the goals you’ve worked so hard to achieve.
That’s why it’s important to partner with a seasoned pro who will help you maintain a long-range view of your investments. Look for an advisor who has at least three to five years of hands-on experience and is properly licensed and registered with their state and national organizations. Reputable advisors will often have designations like certified financial planner (CFP), certified fund specialist (CFS), or chartered financial analyst (CFA).
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Here are other aspects of a financial advisor to check out:
- A good financial advisor will help you make informed decisions about your money. They will explain all the investing details until you get it! A professional advisor would never encourage you to invest in something you don’t understand.
- Communication style. Text messaging is great, but if all you get from your pro are quick texts and excuses why they can’t meet one-on-one, then maybe you should move on. It’s important to meet face-to-face with your advisor at least once a year—and maybe more—depending on your financial needs.
- Ability to assess your overall retirement picture. You need someone who will help you map out a retirement plan. Your advisor should explain the big picture and provide a strategy to achieve your retirement goals.
Ask About Compensation
There’s nothing wrong with paying your financial advisor. They work hard to ensure your money works for you! But you deserve to know how your advisor gets paid and which options benefit you in the long run. Just be sure your advisor is honest about any fees associated with the investments they recommend. If you’re unsure of how to start the conversation about compensation with your financial advisor, use a few of these questions:
- How will I compensate you for your investing services?
- Do you earn commissions on investments you sell?
- How do you get paid for investments you recommend?
- Will I have additional expenses beyond your service fee?
- How will these fees/commissions affect my investments long-term?
Hire a Professional, Not a Salesperson
A true investing pro knows you’re in charge of your own money and treats you like a partner, not a transaction. Choose an advisor who’s smarter than you but doesn’t act like it. Again, an advisor should explain every detail in plain English until you get it—no matter how long it takes—so you can make the decision that’s right for you.
Even a seasoned investor like Dave knows the value of an experienced pro when it comes to growing his investments. If you need help finding a qualified financial advisor, check out the SmartVestor Pros near you.