How to Choose a Financial Advisor

How to Choose a Financial Advisor

Financial advisors are your financial planning partners. They are educators whose task is to help you understand how to achieve your financial goals. The process may include detailed help with financial topics such as saving, financial planning and investing.

The first step in the process of financial advisory is to understand your current financial health as you can’t properly plan for the future with knowing where you currently stand. This includes knowing your current and projected income and expenses.

In choosing your own financial advisor, it is important to consider these three things:

What Type of Financial Advisor Do You Need?

Not everyone who can provide financial advice is a financial advisor. There are two basic types of financial advisors based on how they are paid. These are: commission-based and fee-only.

Commission-based financial advisors are sales people. They sell financial products such as insurance and mutual funds because they receive commissions out of it. Because they receive commissions solely on the products they sell, there is a major conflict of interest here as they can be bias and be tempted to sell you products with the largest commission.

Fee-only financial advisors usually perform a financial planning with the best interest of their clients in mind. They are not bias to a particular financial product by a certain company. Instead, they are more open to review and compare the same type of product from different companies.

They only make money through flat fees, hourly rates or a certain percentage of the assets they manage. They usually don’t make money based on product sales and they are usually more than eager to offer comprehensive advice including estate, retirement, and taxes.

How Much Help Do You Need?

If fee-only financial advisor is your preferred type, then the next question to ask yourself if how much help you need.

If you have a short specific question, then best is to engage them with an hourly consultation rate. They charge an hourly fee and should be able to give you a total cost estimate upfront based on your specific question.

If you need a comprehensive financial planning that encompasses savings, insurance, retirement, taxes, estate, education, etc. you might need a financial advisor that charges a flat fee.

However, if you want someone to manage your assets in behalf of you, then choose a financial advisor whose rate is based on a certain percentage of the assets he or she manages for you.

Look for Background and Credentials

Look for financial advisor who has credentials to prove. These credentials include licenses such as CFA, RFP, CPA, etc. Here in the Philippines, there’s RFP or Registered Financial Planner. Aside from licenses, check also for experience. Ask questions such as: How long have you been practicing financial advisory? What was your previous experience? Who are some of your clients?

Choosing a financial advisor is critical in the type of advice that you will get. Ask friends for referrals and join Facebook groups to find the financial advisor that suits you.


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