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How To Select a Financial Advisor
Barclaycard Ring Public Blog

This week’s blog post in our “Financial Planter” series is written by Roger Wohlner, a Financial Services Professional.*

 

 

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As you move through life, you may decide that you need the opinion and advice of a professional financial advisor. But how do you go about selecting someone who is right for your needs?

Here are some things to consider in the process.

 

Define your needs

Know what you are looking for from a financial advisor. Are there specific financial issues or questions that you want solved? Are you seeking a one-time financial plan or ongoing advice and investment management? Are you a 30–something, or are you on the cusp of retirement? The point is to be as clear as possible about your needs so you can hone in on a financial advisor who is an expert in your areas of concern.

 

 

Compensation – advice vs. product sales

There has been a lot written recently about the new Department of Labor's fiduciary rules. Beyond this definition, financial advisors who truly act as fiduciaries are bound to put the interests of their clients first. Those registered as investment advisors with the SEC and various states must adhere to a fiduciary standard, as do many fee-only financial planners who are members of NAPFA, The Garett Planning Network and other organizations.

 

A big part of this discussion is how the advisor will be compensated. The main types of advisor compensation are:

Fee-only is what it sounds like. Financial advisor who are compensated on a fee-only basis are paid only by the fees they charge to their clients. These might be hourly as needed, a flat one-time fee for a project like a financial plan, a set retainer for ongoing advice or as a percentage of the investment assets they are providing advice on.

 

Fee-based is often confused with fee-only, but it is not the same. Fee-based compensation, sometimes called fee and commission, usually involves some sort of fee for service such as an initial financial plan or a fee-based brokerage investment account. Beyond the fee part, much of the implementation involves commissions either from the direct sale of insurance or investment products, or trailing on-going commissions received by the advisor paid by mutual funds or other products.

Commissions are pretty straight forward. The advisor, broker, insurance agent or registered rep sells you a financial or insurance product and they receive a commission from the financial services company whose product was sold.

 

Compensation is important, as it can signal if the advisor is truly making recommendations that are in your best interests, or if their advice is in part motivated by the amount of compensation they stand to receive from selling a product. Of course, advisor competence is just as important as their compensation method.

 

Where to look for a financial advisor

One source often used is recommendations from friends, family and other professionals. This is a good source to a point. Keep in mind that the financial situation of a family member, friend or a co-worker might be vastly different from yours, so you should still do your own assessment of whether the advisor is a good fit for your financial needs.

 

Several organizations such as NAPFA, the Garret Planning Network, the XY Planning Network and others offer an advisor matching service. These are all fee-only networks and are a good place to start your search.

 

Questions to ask

There are any number of questions you should ask a prospective advisor such as:

  • What background and certifications do you have? Typically, the CFP designation and the PFS designation (the personal financial specialist designation for CPAs) are the two most recognized.
  • Do you work with clients in situations like mine?
  • How and how often will we communicate?
  • What is the compensation structure?
  • Where will my money be housed? (If they are managing your investments.) The answer should be a legitimate third-party custodian to prevent fraud.
  • Will we be signing an agreement, and will I get a copy of your firm's ADV (required disclosure) with the agreement?

You can check on an advisor's history and any disciplinary actions on the SEC's website or on FINRA Broker Check.

 

Summary

Finding a financial advisor who is right for your needs can be a daunting task. The issues and questions outlined above are a good starting point. Be an informed client; don't “settle” for someone who isn't right. Find someone you can trust and in whom you have confidence. Getting good advice can be the difference between reaching your financial goals or a life of financial disappointment.

 

 

 

*All content provided in this blog is supplied by Roger Wohlner and is for informational purposes only. Barclaycard makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.

 

Image credit: Shutterstock 

 

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