Treat Hiring a Financial Advisor Like Buying a House

Step by step instructions to find a financial advisor that will work with you to create a plan.

Many people have a negative impression of the financial industry, and of financial advisors in particular. But how bad is the situation? There have been numerous reports circulating recently (examples can be found here and here) about people getting scammed by high fees and improper sales tactics at their financial institutions. There are things you can do to help protect your assets.

Popularity of Robo-Advisors

You may have heard about robo-advisors or discount brokerages. Both are becoming increasingly popular because of the significantly lower fees. I’m not here to dissuade you from going that route. In fact, both are really good options for a lot of people.

The one big downside is that you don’t get the advice. A good financial advisor can help guide your money decisions and may save you money in the long run. Yes, it will be cheaper, but if you don’t really know what you’re doing, then it could cost you in the long run.

If you want to take the DIY approach, then it’s not a bad idea to seek out a fee-for-service planner in your area that can help you with more detailed planning when you need it. This way you can manage your own investments but still get expert advice when you need it. Most fee for service planners will charge an hourly rate or have a flat rate for the preparation of a plan. That way you can get the best of both worlds.

If you’d like to go the traditional route and get a bit more hand-holding, you need to know what to look for.

How do you know if you have a good advisor?

There’s no perfect answer to that question. An advisor who might be the best fit for one person might not be the best fit for another. Many advisors have a particular focus. And because of that will have specific knowledge and experience.

For example, if you are planning to retire in the next year your needs will be very different from someone who is just starting to invest and wants to take more risk.

What you really want is to be comfortable with whoever is running your investments. This is your life savings after all. Trust is essential. However, this doesn’t mean hiring your cousin or high school best friend is a good option. Find someone you trust, but also someone you can have a strictly professional relationship with.

The Challenge of Being a Young Female

The financial industry is sort of an ‘old boys club’ (shocking right?) This can make finding someone to manage your finances daunting, especially for young investors and us ladies. If you feel like you are getting forced into something then you need to take a minute. Let the person know you need some time to think and continue the search elsewhere. I promise there are great advisors out there. You might just need to kiss a few frogs along the way.

Fees

There is no magic number to look for when it comes to how much an advisor should charge. Cheaper doesn’t always mean worse, and more expensive doesn’t mean better. What you are looking for is someone who can justify their fees based on the services they provide. If you are meeting your goals and are happy with the service you are receiving, then you’re likely in the right place.

If you are in need of an advisor or looking to make a change, there are some tips you should follow when seeking someone out. Think of the process like buying a house. You wouldn’t walk into the first place you see and throw all your money at it, right? Not a chance! You would look at lots of different options, get the place inspected, do some research on the neighbourhood, and figure out how much it’s going to cost you both short and long-term. Choosing who is going to be in control of your life savings is an equally important decision. You should take it just as seriously.

You have options!

Just because you do all your banking and maybe have your mortgage at your bank does NOT mean you need to have your investments there as well. They might strongly encourage you that you must, but that’s not true. There are other options out there that aren’t tied to the bank.

If you are new to investing and just starting to build assets it can be a challenge to find an experienced advisor. One way around this would be to contact your parent’s advisor. Often they will be more willing to help because of the family connection.

Ask your family and friends

Getting a referral from a trusted friend or family member is often the best way to find someone and many advisors will take on referrals even if they aren’t technically accepting new clients. Money can be such a taboo subject to talk about but if you are working with someone you think is amazing then share that info! You can also ask other professionals you use; accountants, lawyers, mortgage brokers, etc. often have relationships with advisors and can provide a referral.

Interview more than one person

Take the process seriously and line up a meet and greet with at least a couple of different advisors before making your ultimate decision. Be prepared with some general questions but also questions that relate to your specific situation. For example:

  • What is your investment philosophy? And can you show me a mock portfolio?
  • How do you get paid and what is your fee structure?
  • Do you have experience with my specific pension plan?
  • What demographic are the majority of your clients?

Ask for References

Yes for real! A potential advisor should be able to give you the names and contact information for a few clients who you can get in touch with and see how happy they are with the service. If they’re not willing to do this, then there’s probably a good reason for it. Obviously, only people with positive things to say will be asked to be references, but it can still provide some degree of comfort knowing other people out there are happy.

What services do they provide?

How much an advisor charges isn’t the only thing to focus on and going with the cheapest option might not actually give you the best value. Think (and ask) what other services might be provided. Not only can your financial advisor give you guidance on which investments are right for you, many also offer comprehensive plans and advice on such topics as tax planning, debt repayment, pension plans, budgeting, and buying a home. A detailed financial plan can cost you hundreds of dollars. If your advisor is willing to do that at no charge and keep it updated, you should factor that in when considering fees.

Bad advice is out there, both floating around the internet and coming from so-called professionals, so you need to prepared to deal with that. Remember, it’s your money. You have a responsibility to do your homework and make sure you are only taking advice from someone you trust and who knows what they’re talking about. You wouldn’t buy a house just because somebody told you it was a great deal. Don’t make the same mistake with your money!

Step by step instructions to find a financial advisor that will work with you to create a plan.

This post was proofread by Grammarly.

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