Tips for choosing a financial advisor

May 17, 2021

Choosing a financial advisor is a major life decision — in fact, you could say your fiscal future hangs in the balance. So how do you go about the selection process? Whether you choose to conduct a series of interviews with several prospective advisors (hint: don’t automatically hire the first person you come across — shop around first!) or do some online research and follow up with your faves is up to you. However, looking for key information and being prepared to ask some pertinent questions is essential. Here, we’ll walk through what to ask and why, plus a few things to keep in mind when looking for that perfect fit.

What are your qualifications?

Most financial advisors are required to pass a test in order to give investment advice. Key tests include the Series 7, Series 66, and/or Series 65. Financial professionals working for an institution with a trust charter are not required to be licensed. Some advisors go a step further and become a CERTIFIED FINANCIAL PLANNER™, or CFP®. Asking your advisor about their licenses, tests, and credentials ensures that your financial well-being really is in the best hands.

Do you specialize?

Some financial advisors focus on individuals with a high net worth; others specialize in retirement planning, business owners, or young families. Some financial advisors represent a specific group or religion upholding a set of beliefs, which is great if their values are in alignment with yours, they’re highly qualified, and their area of expertise aligns with your financial needs.

It’s also important to make sure you and your advisor align on investment style. For example, if impact investing is important to you, you may want to ask whether your advisor will be able to help you create a portfolio that speaks to your values.

Is there a team behind you?

Ideally, this financial advisor is part of a larger team of experts, because you know what they say about two heads — or nine or 10. You’ll be able to benefit from the experience of all the investment professionals on the team while getting personal service from your dedicated financial advisor. If this is the case, you are certain to have representation from every area of specialization.

What asset allocation will you use, and do you have a customized approach?

You’ve heard how important it is to be diversified, right? Your asset allocation is how you create a diversified portfolio — it drives most of your returns and controls the level of risk.

You’ll want an advisor who suggests a unique strategy with your investment profile in mind, based on your goals, risk tolerance, and timeline. If they suggest aggressive investments even though conservative is your comfort zone, or recommend the same mix of stocks (or bonds and index funds) for every client regardless of their goals, risk tolerance, and timeline, then it might be time to pass. You’ve worked too hard for one-size-fits-all treatment.

What benchmarks do you use?

A benchmark is a standard against which the performance of a security can be measured. Generally, broad market and market-segment stock and bond indexes are used for this purpose. Advisors should use benchmarks that directly relate to what they’re invested in, or be able to explain why they don’t.

How are you paid?

Fee-only advisors may charge a flat fee for services, an hourly fee, or a percentage of your assets under management. Still other advisors are paid commissions by certain funds, which can present a conflict of interest. This is when it makes sense to ask more questions to ensure that the products being sold are in your best interest.

What are my all-in costs?

In addition to paying the advisor, you’ll face other fees, so you’ll want to know what they are — and choose an advisor who is candid about them. This is a good time to inquire about taxes, too.

Are you a fiduciary?

A fiduciary works in the best interest of the client — period. Nonfiduciaries need to only recommend products that are “suitable” — even if they're not the lowest-cost or most ideal for you.

Who is your custodian?

Ideally, your financial advisor has hired an independent custodian, such as a brokerage, to hold your investments, rather than act as their own custodian. This provides an important safety check, as well as added peace of mind.

Sadly, not all financial advisors are created equal. A bad advisor could cost you plenty (in fees and taxes, for starters). A great advisor makes you feel empowered and in charge of your financial life, with sound advice and information in everyday language — clarifying, not confusing — and an efficient and effective plan to reach your goals. Take the time to research potential advisors, acting as if your future depends in it… because in a way, it does.

If UBT’s investment professionals can help, give us a shout!

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Learning Center articles, guides, blogs, podcasts, and videos are for informational purposes only and are not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.