Hiring a financial advisor is a significant life decision that can profoundly impact your financial future for years to come.
According to a study by Northwestern Mutual on American adults' attitudes and behaviors towards money, 71% of respondents believed their financial planning needed improvement, yet only 29% actually worked with a financial advisor.
Research indicates that individuals who work with a financial advisor tend to feel more confident about their finances and may end up with approximately 15% more savings for retirement.
However, it's essential to recognize that the value of working with a financial advisor varies for each person, and advisors are legally prohibited from guaranteeing returns.
1. Avoid Non-Fiduciary Financial Advisors
When seeking financial guidance, steer clear of non-fiduciary advisors. A fiduciary advisor is legally bound to act in your best interest, providing unbiased advice and disclosing any potential conflicts of interest. This commitment ensures that your financial well-being remains the top priority throughout your advisory relationship.
One critical aspect to consider when choosing a financial advisor is whether they are a fiduciary. Fiduciary advisors are held to a stringent fiduciary standard, meaning they must always act in their clients' best interests, disclose any potential conflicts of interest, and provide all relevant information to their clients.
2. Avoid Rushing into Hiring the First Financial Advisor You Encounter
Resist the urge to quickly check off "hire a financial advisor" from your to-do list. While it might seem convenient to choose an advisor based on proximity to your home or family, making a decision that impacts your financial future requires careful consideration. Take the time to research and interview multiple advisors before making a commitment. Our free matching tool can connect you with up to three advisors to compare.
3. Ensure Your Advisor's Strategy Aligns with Your Goals
Risk tolerance is a personal preference that varies among financial advisors. Some may favor aggressive stock investments, while others may lean towards safer bonds. Seek out an advisor whose risk tolerance matches or is willing to adapt to yours, ensuring their strategy aligns with your financial goals.
4. Verify Advisor Credentials
When it comes to financial advice, quality matters. Before committing to an advisor, inquire about their credentials, including tests passed, licenses awarded, and certifications earned. Look for advisors who have passed exams like the Series 7, Series 66, or Series 65. Some may also hold the Certified Financial Planner (CFP) designation.
5. Understand Advisor Fees
Fees play a crucial role in your financial journey. High fees can erode your returns and impact your overall savings. Be aware of how fees are structured, whether it's a flat rate, a percentage of assets under management, or commissions from financial products. opt for transparency and clarity in fee arrangements to ensure they align with your financial goals.
6. Conduct Thorough Advisor Vetting
While there may be numerous qualified financial advisors available, selecting the right one can be daunting. Take the time to thoroughly vet potential advisors, considering factors such as their experience, reputation, and compatibility with your financial needs and goals.
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