If having a dedicated professional to help you manage your money sounds appealing, consider looking into a financial advisor – regardless of your income. There’s no substitute for financial education but an expert advisor can help you with your financial goals.
There are many kinds of advisors who are trained to help you with many different aspects of your finances. Here are some of the most common ones:
Financial counselors work with you collaboratively to help you identify goals and potential solutions to your personal financial problems. They can help you understand complex monetary issues and improve how you manage your money. Consider finding a certified financial or debt counselor to fit your needs through nonprofit organizations like the Association for Financial Counseling and Planning Education (AFCPE), or National Foundation for Credit Counseling (NFCC).
Investment advisors can provide a wide range of services, whether it’s helping you plan for your retirement or advising you on how to manage your investments. You pay for their services with either a flat salary or a percentage (typically 1 percent) of the assets they manage for you. To learn about the basics of investing and investment products, visit the U.S. Securities and Exchange Commission (SEC) Investor website.
Broker-dealers or stockbrokers do many of the same things that investment advisors do, but it’s important to note that their job is to persuade clients to buy or sell financial products such as bonds, stocks and ETFs. Unlike investment advisors, they’re paid on commission – the more transactions you make, the higher their pay. For detailed resources and advice for investors, visit the Financial Industry Regulatory Authority (FINRA) website.
Tax advisors or tax preparers are specially trained in tax law and work to make sure everything goes smoothly when tax season rolls around. They ensure you pay your fair share, but also that you’re not paying more than you need to. They are typically paid by the hour or for a flat fee depending on the specific service. The Internal Revenue Service government website offers in-depth advice for choosing a tax advisor and provides forums to file complaints or reports if any issues arise.
Once you’ve determined the kind of financial advisor you would benefit most from, make sure you find the right one by considering these seven tips:
- Check their credentials. When your money is at stake, it’s crucial to make sure your advisor is accredited and legitimate. If you’re considering a potential stockbroker, FINRA has a search tool that allows you to see a broker’s employment history, licenses, complaints against them, and more. You can also search for information on investment advisors on the SEC government website.
- Understand the differences between advisors held to a fiduciary or a suitability standard. Investment advisors held to a fiduciary standard are legally obligated to act in your best interests. Advisors who are registered to provide services under a suitability standard are obligated to choose investments that are suitable for you. However, this doesn’t mean that advisors who work under a suitability standard are not good options – regardless of which standard they’re held to, advisors with integrity work for your best interests.
- Consider how they make their money. Depending on the type of advisor, the way they get paid can be critical to consider. For example, investment advisors that are paid at a flat rate are considered preferable to those paid on commission, since advisors paid on commission may have an incentive to advise you to invest in certain companies, even if it’s against your best financial interest. Fee-only advisors are often held to a fiduciary standard, while commission-based advisors usually work under a suitability standard.
- Get to know your potential advisor. Beyond competence and integrity, make sure you get along with your financial advisor. Personal finance can be a sensitive and stressful topic, so you want to be able to discuss issues openly with your advisor as they arise.
- Ensure advisors operate with transparency. Though ideally you will never need to file a complaint, it’s important to ensure the advisors you work with make it easy to do so. The Consumer Financial Protection Bureau (CFPB)’s website allows customers who haven’t been able to file a complaint with a company to do so directly in the CFPB complaint database. The database is open to the public, so you can also search for companies you’re interested in working with and check the credibility and reliability of their services.
- See if you fit the profile of a “typical client.” If you choose to hire an investment advisor that typically works with wealth management clients and you’re asking them to manage a much smaller amount of money, he or she might not be the advisor for you. Ask your potential advisor about the kinds of clients he or she manages money for and whether he or she has experience managing money for someone with similar assets to you.
- Decide what their qualifications should be based on your needs. Depending on what you want your advisor to accomplish for you, decide what you think his or her qualifications should be and see if they match up to your expectations. It’s important to check certifications – for example, Certified Financial Planners (CFPs) must pass a test covering financial categories from retirement to taxes. For more information on financial certifications, check out FINRA’s complete list and explanations of professional designations. Also, search for advisors who have years of experience working with clients.
Bottom line: While there are many qualified financial advisors out there, it’s important to find the right match for you. Regardless of your income, a good financial advisor can make your life easier and suggest ways to help you grow your money. Hiring one that is not a good fit could complicate your financial situation, so research your options before making a commitment.
By Nathaniel Sillin
Nathaniel Sillin directs Visa’s financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney