There is a key for every lock, a solution to every problem, and an expert financial advisor for every investor. Whether you are starting your investing journey or are an experienced investor with a large portfolio, you need an expert financial advisor who can guide you to secure, grow, and maintain your portfolio.

While you are busy earning wealth, a financial advisor will help in various aspects of financial management like investment management, tax planning, retirement planning, estate planning, and so on. This article will discuss a detailed process and points you must consider while finding a good financial advisor.

Why do you need a financial advisor?

Let us first understand why you might need a financial advisor. A financial advisor provides a wide range of financial services customized per the client’s needs and objectives, from financial planning to retirement planning. Below are a few reasons to hire a financial advisor:

1. Customized financial planning: A financial advisor will understand your objectives and create a plan as per your financial needs. They also help in gaining clarity on your objectives and designing further action plans accordingly.
2. Investment Advice: As an investment advisor, he will guide you with proper investment advice as they know your risk tolerance and objectives. They will also help you to diversify your portfolio, guide you to invest in an appropriate asset mix and realign your portfolio when needed.
3. Retirement planning: Retirement planning is more than saving money for retirement. It involves strategic investments in appropriate retirement accounts for maximum returns to ensure all expenses are met. It also includes monitoring your withdrawals and minimizing tax liabilities.
4. Tax optimization: A financial advisor can help you design tax strategies to minimize tax liabilities by identifying tax-efficient investments.
5. A peaceful state of mind: Hiring the right advisor will give you a peaceful state of mind. Knowing that your portfolio is in safe and expert hands will release stress and allow you to focus on other areas of your life.

Qualities to look in a financial advisor

A novice might not be able to do justice to your profile. You should look for the following qualities while finding the right financial advisor as you need a trustworthy and dependable advisor to handle your portfolio:

1) Fiduciary Responsibility: This is the non-negotiable quality that an advisor should have to work. Fiduciary responsibility binds him legally to act in the client’s best interest. A professional financial advisor will always give you biased-free guidance and advice that is free from his gains

2) Credentials and certifications: People use different designations like investment advisors, investment planners, portfolio managers, financial coaches, and even financial therapists to position themselves. However, you must check the advisor’s background before hiring him. You must verify whether he is a certified financial planner and verify his credentials.

3) Transparency: A financial advisor should be transparent in his terms, fees, credentials, and experience. He should provide detailed information related to the services they offer. Any hidden fees and lack of transparency are red flags.

4) Availability and proper communication: A financial advisor should be available to communicate with his client if any kind of exchange of information is required. You must be able to directly communicate with your advisor in need. 

5) Experience: Advisors must have good experience in finance as it is a very sensitive area of concern for everyone. He must be aware of new laws, tax slabs, and any happenings around the world as these factors affect the market conditions which in turn impacts the investment portfolio.

Steps in finding a good financial advisor

1) Understand your financial goals: Before even starting to look for an advisor, you must have a clear understanding of your financial goals. Ask yourself, “What exactly you are looking for from an advisor?”, “Which services you would like to take from an advisor?” Are you looking for holistic help or just guidance for investments, budgeting, retirement planning, or estate planning?

You might need help in any one of these areas such as personal finances, debt management and repayment, investments, tax optimization, retirement planning, estate planning, or all of the mentioned areas. You need to clarify your goals and then start looking for an advisor that suits your goal as an advisor might be giving a wide range of services to his clients.

2) Asking for recommendations: Once you have defined your goal, start asking for good recommendations from your friends, family members, or colleagues. Chances may be that some of them have already worked with their financial advisors and they know the inside story. Once you have enough recommendations in hand, you can choose the right one that understands your financial goal.

3) Look for suitable credentials: 

While selecting an advisor you must look for his credentials. You must ask him what was required to get certain credentials. Advisors with credentials have gone through rigorous study and training. Hence, you can rely on them once you thoroughly understand their credentials. Some of the worldwide credentials are mentioned below. 

• Certified Financial Planner (CFP): Certified financial planners(CFP) follow fiduciary standards which means they will always keep the client’s interest their top priority.  
• Registered investment advisors(RIAS): If you are a US-based investor then you can rely on RIA. RIAs are either controlled by the US Securities and Exchange Commission or state regulators and hence are legally bound by fiduciary duty. These people prioritize the interests of the client and may be able to provide personalized plans.
• Chartered Financial Analyst (CFA): CFA is highly concentrated in the field of investment management and financial analysis. This is internationally recognized specifically for finance, investment banking, and portfolio management.
• Chartered Wealth Manager(CWM), Personal Financial Specialist (PFS), Certified International Wealth Manager (CIWM), and European Financial Planner (EFP) are some certifications that are acceptable internationally.

4) Discovery call with financial advisors: Now that you have a list of advisors ready, you can schedule a discovery call with these advisors to understand their expertise, credentials, and charges and share your financial situations and objectives. You can interview them and ask questions related to the services, their investment philosophy, the tools they use, and whether are they operating as fiduciaries. You can also cross-check their background by looking at their Form ADV and check their employment background on FINRA’s website.

5) Understand their fee structure and consider your budget: While considering your budget, check their fee structure as well. Do they fit in your budget? Check whether they charge a flat fee, annual fee, or hourly fee or charge a percentage of the amount they will manage for you. Remember, high fee doesn’t always means a high standard of services.

6) Know the advisor’s investment approach:  The services of a financial advisor depend on the approach they have toward managing money. Some might have an aggressive approach to growing money while some would consider a more conservative approach to investing and managing money. You need to understand your approach and hire an advisor whose approach aligns with your financial objectives.

7) Investigate the tools they use: Many financial advisors typically use some tools to track the progress of portfolios of their clients. Ask them about the tools they use and also if they provide details to you related to your accounts, portfolio, reports, and financial plans.

8) Understand their availability: Many advisors work with a team and delegate some tasks to their juniors. Understand are you comfortable with the fact of juniors handling your profile? Also, ask how often they are available for communication if needed and whom to connect with for any concerns and queries.

9) Reference check: A reputable advisor would never hesitate to give you his client’s references. He understands that speaking to his clients (if they are comfortable) will create trust in you and will help you understand whether he is a good fit for you.

Types of Financial Advisors

Now, let us understand the types of financial advisors to help you hire a good financial advisor to achieve your long-term financial goals.

1) Fee-only financial advisors: These are the advisors who are directly paid by their clients. They charge a flat fee, an hourly fee, or charges a certain percentage of the amount of money they manage. As these people are directly getting paid by their clients, they have fewer conflicts of interest and provide biased free financial advisory services.

2) Fee-based financial advisor: These advisors are similar to fee-only advisors. However, fee-based advisors might also get some brokerage on selling certain insurance products, mutual funds, or stocks. Hence, this might sometimes create a conflict of interest as advisors might push the client to buy some products that give them high incentives.

3) Commission-based financial advisor: As the name suggests these advisors earn purely by commission by selling some financial products. Once a client buys a product suggested by them, they get a commission on that particular product. These advisors give great advice to their clients however the conflict of interest remains high among these advisors as sometimes they might be selling products based on the incentives they are earning rather than the financial objective of the client.

4) Registered Investment Advisors: This point is discussed earlier as well in this blog, However, it needs to be mentioned under this category as well. Majorly, RIAs work as fee-only advisors and have to disclose any conflict of interest while giving financial advice. They have to follow the fiduciary standards.

5) Certified financial planners(CFP): CFPs have gone through intensive coursework and have passed comprehensive exams. They are trained to handle rigorous financial planning, tax planning, estate planning, and retirement strategies. 

Last step: Hire a financial advisor

The final step is to hire a financial advisor. Once you are completely satisfied with the background of the financial advisor and you feel that a particular investor is aligned with your financial objectives, it’s time to finalize your agreement with them.

The general hiring process for financial advisors is mentioned below,

• Discussion with the financial advisor about your financial situation which typically would have been discussed in the discovery call.
• The advisor gives a contract mentioning his terms of services, fee structure, and any conflict of interest.
• Legal document signature such as form ADV or form CRS
• The advisor then begins to manage your portfolio.

Red signs to watch before hiring

You should watch out for some red flags before hiring an advisor. 

1) High-pressure sales tactics: An advisor must not pressure you to purchase a product quickly without giving you time to think. They should advise you, explain to you the future aspects of the investment, if it aligns with your financial objectives, and give time to think about the investments.

2) Inadequate credentials: We have discussed earlier the importance of credentials not only in knowledge but also the authenticity. Hence, you must be aware and check the credentials of the advisor and then only move forward to work with him.

3) Vague fee structure: The advisor must be clear about his fee structure and should disclose it to you. To maintain the smooth flow of work, it is always best that both parties have clarity on the terms and conditions included.

4) Commitment to results: A good financial advisor is aware that the market faces ups and downs due to various reasons. He must not over-commit the returns or over-promise high returns. 

Conclusion

Finding the right financial advisor is a must to ensure our portfolio is in safe hands and to achieve our long-term financial objectives. Hence, it is essential to look for his credentials, expertise, experience, fee structure, and transparency and if needed validate his form ADV. Key qualities and credentials of a financial advisor include fiduciary responsibility, CFP or RIA, proper communication, and availability. Finding a reliable financial advisor could be a tedious task but in the end, it gives you peace of mind, knowing that your financial future is in safe and secure hands.