Thinking of Hiring a Financial Advisor for the First Time? Here’s What You Need To Know

One of the biggest shocks in life comes when you realize that you actually have money to manage. It can be hard to navigate, especially if you have been scraping by for a while when you suddenly have more money.

No Longer a Student

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When you suddenly are no longer on a student budget and maybe even have a sizeable paycheck, then it can be quite an unsettling experience.

Maybe it’s time to hire a financial advisor to help you make the right financial decisions with your money.

Hiring a financial advisor for the first time can be scary and confusing.

How Are Financial Advisors Compensated?

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“When looking for a financial advisor, the first question someone should ask is, “How are you compensated?”  In fact, if the advisor’s website doesn’t explicitly state the fees, you should just move on to the next advisor on your list,” says David E. Barfield, CFP from Datapoint Financial Planning, LLC.

Conflict of Interest

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“Ultimately, you want an advisor with experience and no conflicts of interest.  Uncovering conflicts of interest can be tough, but if you start by limiting your search to advisors with the Certified Financial Planner (or CFP) designation and then further limit to fee-only, flat-fee, or advice-only, you will effectively remove the salespeople earning commissions or other forms of indirect compensation from your list,” he says.

Fee Structure

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He advises looking closely at their fee structure to see whether they may be a good fit, “Even fee-only advisors can have conflicts, and if the advisor charges a percentage of the assets he/she manages without an upper limit or cap on the fee, that can also be a red flag.  For instance, an advisor charging a 1% fee on assets under management (or AUM) would charge you $10k per year on a $1M portfolio and $30k per year on a $3M portfolio.  And without a cap on that fee, the advisor may be reluctant to offer unbiased advice regarding pulling money from your portfolio for things like real estate investments or paying off a mortgage since a fee will not be charged on the money removed from the managed portfolio.  Look for an advisor charging a flat fee who ONLY gets paid directly by you, the client, and who has obtained the CFP designation, and you should be off to a great start!  Then interview several to find the right fit.”

Conduct an Interview

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Jonathon Bird, CFP, Farnam Financial, says you after you’ve found an advisor with the right compensation structure, you should check their references, both online (for example, on BBB) and from family and friends.

Then you should interview them and see if they are a good fit for you.

Ask the Following Questions

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He suggests asking the following questions:

  • How do you typically work with clients?
  • What types of clients do you specialize in?
  • What is your investment philosophy?
  • How do you tailor your services to meet individual needs?
  • How do you measure success in financial planning?

He also noted, “Ask them to explain financial terms or concepts that you are unfamiliar with! As you talk with the financial advisor, note how they communicate with you. Do they take the time to listen to your concerns and answer your questions in a clear and understandable manner? Do they seem genuinely interested in helping you achieve your financial aspirations?”

A Partnership

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Michelle Francis from Life Story Financial LLC says you must be happy with the financial advisor you choose.

“Good financial advisors want to form a long-term relationship with clients to support them throughout life. So, it’s important to find someone who’s not only qualified, but that won’t be judgmental and one that you actually like!” she says.

Red or Green Flags

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She also suggests keeping an eye out for red or green flags when researching and interviewing an advisor, “BrokerCheck will include a list of formal complaints, judgments or investigations filed against a firm or individual. Another red flag to look for is someone who won’t clearly explain how they are compensated. Green flags include someone who is legally bound to act as a fiduciary such as a Registered Investment Advisor (RIA). ”

Hiring a financial advisor for the first time can be scary but do your research, pick someone you are comfortable with, and it will be ok!

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This post was produced and syndicated by A Dime Saved. 



Hi! I am a millennial mom with a passion for personal finance. I have always been “into” personal finance but got inspired to start my blog after a period of extended unemployment. That experience really changed the way I viewed my relationship with money and the importance of accessible personal finance education.