Fiduciary Financial Advisor: What It Is and How to Pick a Right One
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Investing and saving for retirement can be a difficult undertaking, especially when the difficulties of managing the intricacies of life are apparent. How does one go about investing or saving and where can one go to get help or advice on the matter from a trusted professional? The answer often lies in the help and assistance of a financial professional, more formally known as a financial advisor. A financial advisor is a qualified professional who is specialized and trained in understanding, tacking, and balancing an individual’s or family’s retirement savings, college savings, and other investment goals. They do everything from creating and designing financial plans to crafting an investment strategy; however, financial advisors come from different and diverse backgrounds often receiving varying forms of training and providing a wide range of services to their clients. It is important for individuals and families to be able to differentiate between different specializations and services a financial advisor may provide. The goal is to find a trustworthy advisor that an individual or family can trust and rely on to give the best possible fiduciary care that is specialized for their specific financial situation.
How to Choose a Financial Advisor
Evaluate Financial Needs
The first course of action an individual or family should take when exploring a potential financial advisor is to look at what exact financial services one needs. This is a great time for an individual or family to take a step back and access exactly what they are looking to get out of a financial advisor and to take a hard look at their financial journey so far and how they want it to look in the future. Asking questions such as: Are we ready for retirement? Do we need to rebalance our investments? Or do we have a large enough emergency fund? These are all questions a financial advisor can help answer. By figuring out exactly what one needs from a financial advisor at the current moment and in the future, one will be able to choose a financial advisor that best helps their needs and their current and future goals and objectives.
Understand The Different Types of Financial Advisors
The term “financial advisor” can mean a lot as it is one big umbrella term. Under that umbrella, one can find investment professionals, tax professionals, financial consultants, wealth managers, and financial planners. All of these professionals can legally call themselves financial advisors, so it is important to understand what exactly to look for in regard to one’s personal financial needs. Depending on job title, financial advisors, must go through a rigorous and extensive education in order to obtain the designated and required certification. The most popular of which more financial advisors identify as are the following:
- Certified Public Accountant (CPA)
- Personal Finance Specialist (PFS)
- Registered Investment Advisor
- Registered Investment Advisor (RIA)
- Certified Financial Planner (CFP)
- Certified Financial Planner (CFP)
- Chartered Financial Analyst (CFA)
Understand what a financial advisor does
Now that one understands the different types of financial advisors; one can move on to what exactly a financial advisor does. Financial advisors are able to specialize in various types of sub-industries related to finance. Making sure to learn about and understand what each specialized advisor does is important to be able to pick the right fit for one’s personal financial situation. Here are a few services that financial advisors provide. Knowing the differences between these services will allow one to find the best financial advisor for their finances.
- Investments: If one needs investment help, investment financial advisors are the finance professionals one should talk to. They will advise and teach individuals on which investments are the right fit for one’s investment strategy or risk appetite, help make recommendations to keep one’s investments balanced and diversified and keep one’s mind at ease, knowing their investments are in safe hands.
- Retirement planning: With a retirement-specialized financial advisor, one can help individuals and families project future financial income and needs while strategizing the best strategies to stretch one’s investments and retirement savings for a comfortable retirement.
- Tax planning: Taxes can be complicated. Visiting a tax professional may be extremely helpful in order to help file or amend complicated tax returns. These financial advisors help minimize an individual’s tax burden and help families pay less taxes.
- Estate planning: Wealth managers and attorneys often specialize in estate planning and can help individuals and families put an estate plan together that provides peace of mind and a plan detailing what were to happen with one’s assets after a death in the family. This is especially useful for ultra-wealthy individuals or families with complex financial situations.
- Health and long-term care planning: Individuals often need extensive medical care and even assisted living options when they are past retirement age. A good financial advisor or insurance agent can help make sure one has a good long-term plan for these expenses.
- Inheritance: A wealth manager or financial planner can help individuals and families decide what to do with inheritance money and make a plan on how to properly invest it for future generational wealth. Tax implications can often get complicated and messy with inheritances. Wealth managers and financial planners are specialized experts in resolving tax issues and can help put worries at ease over inheritance money.
Helping you achieve your evolving financial objectives
Financial Advisor Cost
Now that one knows which type of financial advisor is best for the individual or family; one needs to decide which to choose based on their payment structure or fee. The three most popular structures are commission-only, fee-only, and a potential mixture of both. Commission-only financial advisors ask for a commission upfront as part of the portion invested with them into their particular service or investment. For example, if one were to invest $10,000 into a mutual fund with a 5% fee, one would pay $500 in financial advisor commissions while the rest of the money gets invested into that fund. Meanwhile, a fee-only pricing structure dictates that an advisor accepts either a percentage, hourly, or flat-rate fee for their services. These financial advisors often work on a continuous retainer.
There are positives and negatives to each approach; however, it is recommended that individuals and families stick with financial advisors who operate on a fee-only model. Commission-based financial advisors may often have conflicting interests as they may promote services or investment vehicles that are not the right fit for one’s investment strategies or objectives. A fee-based financial advisor is one that operates with a fiduciary objective to provide clients with the best possible service. These advisors only make money if one’s financial investments grow over time. One should always ask their financial advisor how they get paid. If they do not provide a straight answer, it is best to walk away and find a financial advisor who is honest, transparent, and trustworthy.
Research Financial Advisors
Now that all aspects have been decided, and one has been able to detail the exact financial advisor one wants, it is time to do some heavy research. One should research and interview as many candidates as possible to find the best advisor and the perfect fit for one’s finances. Asking alot of questions is important to gain a good feel for how honest, open, and trustworthy a financial advisor is. A financial advisor should always provide a straight answer. Some recommended questions to ask are:
- What do you love about your job?
- What services do you provide clients?
- What is your investment philosophy?
- How will we communicate about my investments?
- How do you get paid?
- How will you measure and evaluate my investment performance?
- Can you tell me why the last two clients you lost stopped working with you?
- Do you personally invest in this fund yourself?
It is important to share the same investment philosophies with one’s financial advisor to make sure that they have the client’s best interest in mind and ready to reach all of one’s financial objectives and goals. One should have a financial advisor who can clearly explain their investment philosophy and provide explanations as to why they made certain changes or additions to one’s investment strategy. Their strategy should also match one’s long-term requirements, financial needs, and goals. If something does not feel right about a potential financial advisor, then one should keep looking. Hiring a financial professional can be difficult, and it is acceptable to walk away from one if something feels amiss. It is best to avoid a sales-minded professional or expert and an individual who is unable to explain in clear and simple terms their strategy on how they would handle one’s finances.
- https://www.nerdwallet.com/article/investing/how-to-choose-a-financial-advisor
- https://www.investopedia.com/terms/f/financial-advisor.asp#:~:text=A%20financial%20advisor%20provides%20financial,tax%20planning%2C%20and%20estate%20planning.
- https://www.nerdwallet.com/article/investing/how-much-does-a-financial-advisor-cost
- https://www.nerdwallet.com/article/investing/10-questions-ask-financial-advisor
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