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How To Choose a Financial Advisor

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Key questions to ask when researching candidates

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Whether you’re wondering when the best time is to buy a home or looking for ways to maximize your retirement investments, a qualified financial advisor can help guide you through important financial decisions. Over time, an advisor can have a significant influence on your financial health. That’s why it's crucial to find one who understands your goals and acts in your best interest.

Just as doctors have different bedside manners, advisors bring different approaches and personalities to the table. Most financial advisors do not charge for an initial meeting, so meet with three to five candidates to get a feel for how their style fits with yours before settling on one. "If you want to understand an advisor’s financial recommendations and he or she seems unwilling to explain it, then that's a bad match," says Tom Warschauer, a professor emeritus of personal financial planning at San Diego State University.

In addition to assessing a potential financial advisor's style and approach, ask these questions:

  • What are your qualifications? The financial industry has many different designations and acronyms so if you're unsure what something means, ask. Certified Financial Planner (or CFP) is one of the best-known professional certifications. To become a CFP, an advisor must meet strict standards for education and experience, and comply with the CFP Board's code of ethics, which includes rules on disclosing conflicts of interest and protecting client confidentiality.
  • What types of clients do you work with? If you're new to investing, you may feel most comfortable with an advisor who works mostly with clients who are also just starting out. On the other hand, if you're nearing retirement, you might prefer an advisor whose clients are at a similar life stage. Advisors can draw on their experience with these clients to suggest tested solutions to common problems, spot potential pitfalls in your retirement plans or call out investment risks you never considered.
  • Are you bound by the “suitability obligation” or the “fiduciary standard”? Broker-dealers are required to fulfill the suitability obligation. That means they must make recommendations that match the client’s investment objectives, time frame and risk tolerance, for example. The fiduciary standard goes a step further, requiring the financial advisor to place clients’ interests above his or her own. For example, this standard prohibits advisors from recommending products solely because they pay higher commissions to themselves or their firm.
  • How are you paid? Finally, Warshauer explains, it's important to understand how your advisor is compensated— whether through a flat fee, commission or a combination of the two.

"People need to make a lot of investment decisions in their lives, and if they base those decisions on faulty premises, then they're going to make bad decisions," Warschauer says. "That's why it's important to find a financial advisor you trust and feel comfortable with."

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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