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Financial Tip

Financial Tip
Rich Best has spent 28 years in the financial services industry, as an advisor, a managing partner, directors of training and marketing, and now as a consultant to the industry. Rich has written extensively on a broad range of personal finance topics and is published on several top financial sites. Recent books include The American Family Survival Bible and Annuity Facts Revealed: What You MUST Know Before You Invest.

What Type of Financial Advisor is Right for You?

What Type of Financial Advisor is Right for You?

More than ever, people are searching for financial advice. However, the cluttered advisory landscape can be very confusing when searching for the right financial advisor. While there may be hundreds of financial professionals in your area who hold themselves out as financial advisors, there is no uniform standard dictating their qualifications or how they operate. With your financial future at stake, knowing how to choose the right financial advisor is one of the most important decisions you will make.

Understanding what differentiates the many types of advisors is the key to narrowing down your choices. However, understanding what you are looking for in an advisory relationship is how you will know when you find the right financial advisor.

Deciphering the Designation Alphabet

People in Meeting

The fastest way to narrow down your search is to target financial advisors who have earned designations. In most cases, a designation is an indication that the advisor has completed some level of coursework and met certain requirements in a field of practice.

The most recognized designation is the Certified Financial Planner (CFP). After obtaining a CFP certification, a financial advisor is deemed qualified to advise clients regarding their investments, taxes, estates, insurance, and retirement. CFP designees are also required to follow a strict code of ethics in their practice, holding their clients’ best interests above their own. Similarly, the Personal Financial Advisor (PFA) designation requires rigorous coursework and testing and adherence to a code of ethics. Both credentials require advisors to complete a certain number of hours of continuing education each year.

If you want an advisor who focuses more on investment management, you may want to consider a Registered Investment Advisor (RIA). RIAs are required by law to act as fiduciaries, keeping their clients’ interests above their own.

By restricting your search to financial advisors these designations, you are more likely to find those who have demonstrated a commitment to knowledge and a fiduciary standard in their field of practice.

What Do You Want?

Regardless of their designations, financial advisors can still come in many forms. Some are independent with no accountability to anyone except their clients. Others are attached to a brokerage firm or bank and must answer to a sales manager. Independent advisors typically charge flat fees and receive no third-party compensation unless it is fully disclosed to their clients. Advisors who work for a financial institution typically charge commissions on product sales, which creates an inherent conflict-of-interest. Which type of financial advisor is right for you ultimately comes down to what you want from an advisory relationship.

If you want conflict-free advice, you need to know that the advice you receive is not tied to a specific product recommendation. Find out whether the advisor is able and willing to shop the entire universe of investment products for lower cost options or is he limited to a range of options.

If you want complete transparency, you need to know exactly how the advisor is compensated. If the advisor is compensated by commissions or by his firm, you need to know how the fee or commission is applied to the cost structure of the product. If the advisor charges a flat fee or percentage fee, he should provide full compensation disclosure up front.

If you want assurance that your best interests will be served before all others, you need to know which standard of care is applied – a fiduciary standard of care or a suitability standard of care. Always ask for documentation that describes the standard of care provided.

If you want truly authentic financial advice, you need to know that the advisor has the expertise and resources to advise you in all financial disciplines, including investment, tax, estate, insurance, and retirement planning.

You may quickly come to realize that many financial advisors will not be able to pass under this type of scrutiny, which is all the more reason to ask these and other penetrating questions. Setting the tone for the right working relationship with an advisor is done right up front with a thorough examination of his or her qualifications, practices, temperament and philosophy. Contact an Investment Advisor today to see if he or she is the right fit for you.


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