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Finding a Financial Advisor You Trust: What to Know and What to Ask!

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Unless you’re a market guru, having a financial advisor can easily pay for itself. Financial advisors work day in and day out counseling clients on how to best plan for their financial future. As such, they have insights into the fluctuations of the market that laymen don’t. While you might enjoy the thrill of picking your own investments, it’s worth considering having a financial advisor take on the bulk of your portfolio, setting aside a smaller amount for you to play the market with.

So, what should you consider before selecting your financial advisor?

Certification

Financial advisors don’t have to be certified, but it sure helps. Certified financial planners (CFPs) are regulated and licensed. Their licensure involves taking a number of mandatory classes that acquaint them with different aspects of financial planning. This means that someone else has given their abilities a thumbs up and that they have knowledge of a vast array of investment instruments.

Two Red Flags to Watch For

When searching for a financial planner, be prepared to ask a lot of questions. After all, this is nothing less than your future financial stability. However, there are two questions that, when answered in the affirmative, are a clear sign to make a beeline for the door:

  1. Should I replace my whole life policies with term life and invest the difference?
  2. Should I take equity out of my home and invest it?

Both of these have you putting money that is already doing something useful—giving your home value and protecting your family in the event of the unthinkable—into risky, get-rich-quick schemes. Any financial planner worth his salt will never advise you to do either.

What Else To Ask

Once you’ve gotten the two deal breaking questions out of the way, there are some standard questions you should as a financial advisor, including:

  • What are your qualifications? Obvious, right? Ask about any certifications that they hold, what continuing education they pursue and how they keep abreast of the changing market.
  • How are services paid for? Understand up front whether you’ll pay for services based on a set fee, a percentage of transactions or assets under management. Which is best for you depends on how much you’re going to invest and how often you plan to trade.
  • What’s your investment philosophy? Some financial advisors are going to help you work on one area of your portfolio. Others look at your portfolio as a whole. You should also get a sense of whether or not the advisor is more aggressive or passive. There’s no right answer here. The point is to find an advisor who matches your comfort level and needs.
  • Who can you provide for references? The best thing to do is get two references from current clients, as well as a third reference from a professional who does not work for the same firm. This shows you that his clients are happy and that he is professionally respected.
  • What will I find if I research your regulatory record? You’ll have to do the legwork here to find out how honest the potential advisor is. However, he should be up front about any regulatory violations, especially since some are nothing for a customer to worry about, such as settled customer complaints or failing to get his marketing materials pre-approved.

The Most Important Question

The most important question you need to ask when you’re looking for a financial advisor is: Do I like and trust this person? You’re going to be in close communication with your financial planner. If you constantly feel like you have to second guess his advice, or you think that he’s a painful person to interact with, it’s going to be hard to have a fruitful working relationship. Do your due diligence, but also trust your gut. Put these two things together and you’ll be sure to have a financial advisor that works for you and your family’s financial future and security.

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