When people toil away in the gym for months without any signs of improvement, they may hire a personal trainer to step up their routine. Yet the same logic doesn’t necessarily apply when it comes to finances.
Some common misconceptions help explain why people avoid seeking professional help managing their money: Financial advisors only work with rich clients. They cater only to people who have complex investing needs. Their high fees can’t be justified with so many lower-cost alternatives available.
Indeed, hiring a financial advisor isn’t the right choice for everyone. There are numerous ways to achieve your financial goals, not all of which involve paying a professional. Your options include:
- Managing your money yourself
- Consulting family members and friends for advice
- Using a robo-advisor to manage your investments
- Some combination of the above
But if you find investing for the future utterly overwhelming or know your situation may be more complex than most people’s, it may be time to call in a pro. Here are four tips to help you navigate the search for a financial advisor.
» Not sure you need an advisor? NerdWallet’s financial advisor selector can help determine the right advice for your needs.
1. Decode professional titles
At the gym, you have the benefit of seeing a potential trainer’s routine (and results) up close before you take the plunge. That’s often not the case with financial advisors. An advisor’s fancy car, expensive clothes and lavish office will tell you only how he or she is spending money — not how well-qualified he or she is to help you manage yours.
Professional titles in the financial industry can be confusing to newbies, partly because they’re used interchangeably. It’s important to understand what a person’s title means, and the type of advice or services he or she offers. Here’s a quick rundown on various financial titles:
- Financial advisor. Generic term for anyone who provides financial advice in return for compensation
- Broker or stockbroker. Buys and sells financial products on behalf of clients in exchange for a fee, commission or both. Must pass exams and register with the U.S. Securities and Exchange Commission.
- Investment advisor representative. Provides advice and makes recommendations in exchange for a fee. Must act as a fiduciary, putting your best interest ahead of their own.
- Certified financial planner. Provides financial planning advice, and by virtue of this designation has an ethical obligation to act in your best interest
» See how things have changed: What the fiduciary rule means for retirement investors
When entrusting your finances to someone else, qualifications matter, and it’s best to seek advice from people who’ve passed education and certification requirements and will uphold ethics standards. A good starting point? A certified financial planner, says Shannon Pike, a vice president at Tanglewood Legacy Advisors in Houston and the current president of the Financial Planning Association.
“You absolutely should find someone who is certified or qualified,” says Pike, a certified financial planner.
When you’re unsure of a professional’s credentials, the internet can help. Many certifying agencies offer online directories through which you can verify an advisor’s certifications.
2. Interview candidates
You’ve scoured the internet to thoroughly research a potential advisor’s qualifications. Does that mean your work is done? Not quite. It’s time to talk with the advisor and determine whether your needs match his or her services.
The Financial Planning Association recommends a 35-question checklist to help. The questions cover:
- Designations and licenses
- Fees and compensation
- Services and work philosophy
You’re about to start a new relationship that ideally will be for the long term — and will focus on the often sensitive topic of money — so it’s important to clearly outline your goals, Pike says. Are you seeking advice on specific financial topics or a whole range of services? How frequently do you want to communicate with your advisor and in what manner (in-person, phone, email, video calls)?
“You’re entrusting somebody to be an advocate on your money,” he says. “You should be interviewing a few different people.”
Pike recommends a conversation of no less than an hour with a potential advisor to ensure your questions and expectations are addressed. If someone’s not willing to invest time upfront to talk with you (or charges a fee to do so), that’s a red flag, he says.
3. Be honest
If you’re seeking financial advice for the first time, it’s important to be candid throughout the process. And you should expect the same from an advisor.
Rianka Dorsainvil asks prospective clients to fill out a questionnaire addressing their income, debt, financial needs and goals before she meets with them. Dorsainvil, a certified financial planner and founder of Your Greatest Contribution, a financial planning firm based in the metro Washington, D.C., area, works primarily with millennial clients who are seeking advice for the first time.
At times, that screening process leads to her turning down a prospective client. For example, she may refer someone to an appropriate nonprofit organization when they are in severe debt, or simply pass along a budgeting spreadsheet to someone who demonstrates the discipline for a DIY approach but isn’t quite ready for her services.
“This is a relationship business, and making sure we have a connection is so, so important,” Dorsainvil says, adding that a majority of her clients are encountering major milestones like buying their first home, getting married or having a baby. “You’re going to undress, financially, and you must be comfortable talking about the uncomfortable things.”
4. Pay for what you get
You should be very skeptical of financial advice that’s free or unsolicited. At the same time, sound advice costs money, and if you want help, you’ll need to pay for it.
Many people believe financial advice is reserved only for the wealthy. After all, advisors often require that clients have a minimum amount of assets under management ($250,000 is common). But that’s not universal.
Fees should be one of many factors you consider, but Pike says they shouldn’t be the determining one, especially if you’re selecting among a group of qualified professionals. Still, make sure you understand what you’ll be charged in advance.
A recent survey by Charles Schwab found that more than 40% of workers with access to a 401(k) plan don’t believe their financial situation warrants professional financial advice. But the same survey found that workers who sought professional advice reported much higher confidence in their ability to make the right investment decisions.
For clients not ready for the holistic approach to financial planning, Dorsainvil recommends finding advisors who will work on a project-specific basis. If you’re struggling with a specific need, such as setting up your 401(k) or selecting the right insurance, that might cost a few hundred dollars, she says.
If you need an advisor to deal with a specific need, the National Association of Personal Financial Advisors’ directory can be a good place to start your search.
Even if you start with what you can afford, that may help down the road, Dorsainvil says. “It doesn’t matter if you’re a thousandaire or a millionaire, everyone needs help with cash flow.”
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