How to Choose A Financial Advisor
Choosing which financial advisor to work with is an important and challenging decision, and there are many different factors to consider. Making the right choice could have a significant impact on your ability to meet your financial goals.
Fortunately, we have done much of the pre-screening for you. All advisors on the Utah Financial Advisor Network:
Fee-only - are compensated directly by clients, not commissions
Fiduciary - are legally obligated to always act in your best interest
Comprehensive - focus on delivering holistic financial advice
Independent - give unbiased advice and work directly for you
Qualified - hold the CFP® designation and have years of experience advising clients
We are confident that all of our advisors provide clients with objective, expert advice and excellent service.
So what else should you look for in making a decision?
Does the financial advisor have expertise relevant to your situation?
Many of our advisors have deep expertise in specialized situations. This expertise may come from years of experience working with people of a certain:
Profession - such as working with physicians or active duty military personnel. People in the same profession often come across similar financial issues
Life stage - such as those approaching retirement within the next few years or those who are just starting their careers
Special circumstances - such as going through a divorce, starting a business or caring for children with special needs
Employer - especially if you work for a large company with a particularly complex employee benefits system
Net worth or income - since wealthier clients have different concerns around issues like estate planning or taxation than clients of more modest means
In addition, expertise may also come from continuing education or credentials. While there are hundreds of financial credentials available, many lack real substance. On the other hand, there are others, such as the CFP® and those listed below, that require hundreds of hours of study and passing of comprehensive, rigorous exams. While the CFP® offers broad-based education on financial planning topics, the following designations offer more in-depth expertise in specific areas:
Certified Public Accountant (CPA) or Enrolled Agent (EA) - advisors with these credentials are experts in accounting and tax issues, and may even offer tax preparation services
Chartered Financial Analyst (CFA®) - advisors with this designation have a deep understanding of investing and portfolio design
Accredited Financial Counselor (AFC®) - advisors with this designation help people improve their relationship with money and make better financial decisions
While all advisors in the Utah Financial Advisor Network are qualified to work with a wide variety of situations, if an advisor has extensive experience in working with clients who are similar to you, it’s more likely that they’ll be able to provide effective advice and answer all of your questions.
What services do they offer and how do they charge for those services?
All advisors in the Utah Financial Advisor Network are fee-only and adhere to a strict fiduciary standard with their clients. However, they do vary in the services they provide and how they get paid for those services.
There are three primary fee models utilized by fee-only advisors.
Hourly - This is similar to how you might pay your accountant or attorney. Hourly services are often offered for limited scope projects like second opinions or one-time financial plans. Many advisors will give an estimated quote for the requested project.
Assets Under Management (AUM) - This type of fee arrangement is common for advisors offering investment management services. While fees range from advisor to advisor, plus or minus 1% is typical. While all AUM-based advisors offer investment management, it is important to understand what other services are provided. While one advisor may charge 1% for investment management only, another advisor may provide both investment management and holistic financial planning for the same fee.
Annual Flat Fee - While AUM has historically been the standard model for ongoing services, flat fees are an alternative. Flat fees promote a proactive ongoing relationship and shift the focus from investment management to holistic planning. Some advisors include both investment management and financial planning for a single flat annual fee, while others charge a flat fee for financial planning only (often for clients who have yet to accumulate significant investible assets)
While each fee model has it’s pros and cons, it’s important to find an advisor that offers the services you need. Before hiring an advisor make sure you understand all the ways your advisor is compensated and what services are provided.
What is the financial advisor’s investment philosophy?
David Booth, Founder of Dimensional Funds, said that “the most important thing about an investment philosophy is that you have one you can stick with.”
One of the biggest mistakes you can make is abandoning your investment strategy during a tumultuous time in the market. Understanding your prospective advisor’s beliefs about investing and making sure they align with yours is the first step to avoiding this common misstep.
While some financial advisors like to operate behind a curtain of mystery, Utah Financial Advisor Network advisors recognize the importance of educating their clients on investing. We believe that the more you understand about how you are invested and why you are invested that way, the more confident you will be in your strategy. And the more confident you are, the more likely you are to stay disciplined and have a successful investing experience.
If you’re ready to find the right financial advisor for you, head over to our advisors page to get started on your search.
