An advisor who believes in having a long-term relationship with you—and not merely a series of commission-generating transactions—can be considered trustworthy. Ask for referrals and then run a background check on the advisors that you narrow down such as from FINRA's free BrokerCheck service.
They're unresponsive or take too long to reply. The financial advisor world is completely client-centric. You are the priority, you are the center of their universe. A common red flag is if an advisor sounds very client-centric and dedicated to you on the call… but then forgets about you afterward.
Research Your Advisor
If the advisor has any designations, such as the CFP® certification, look them up through those organizations to research any disciplinary action. Run a quick web search through your favorite search engine, and include the advisor's name and “scam,” “theft,” or any other relevant terms.
1 – Ask them directly: A genuine fiduciary will straightforwardly affirm their role and commitment to act in your best interests. 2 – Review the advisor's credentials: Certifications such as CFP® (Certified Financial Planner) or AIF® (Accredited Investment Fiduciary) often indicate a fiduciary standard.
Poor performance, high fees, strained communication and stagnant advice are among the reasons to look for a new advisor. Kevin Voigt is a former staff writer for NerdWallet covering investing.
Having more than one financial advisor allows you to gain guidance in specialized areas that your current advisor may not have expertise in managing.
The number of different services and areas of expertise advisors provide makes finding the right financial advisor for your situation key — doing so means you won't end up paying for services you don't need, or working with an advisor who isn't a good fit for your financial goals.
The best way to perform an annual audit of your financial advisor is through a third-party professional. Their expertise will help you catch the details you might not know to look for.
What Is the Average Fee for a Financial Advisor? The average fee for a financial advisor generally comes in at about 1% of the assets they are managing. Be mindful that you may still pay a higher nominal dollar as there's a higher base the percent fee is applied to.
There are a few ways you can check if a financial advisor is legitimate. You can check with the Financial Industry Regulatory Authority (FINRA) by visiting their BrokerCheck website or calling (800) 289-9999. You can also check the SEC's Investment Advisor Public Disclosure (IAPD) website.
You should meet with your advisor at least once a year to reassess basics like budget, taxes and investment performance. This is the time to discuss whether you feel you are on the right track, and if there is something you could be doing better to increase your net worth in the coming 12 months.
Key Questions to Ask When Choosing a Financial Advisor
Understand their fee structure and any potential conflicts of interest. Consistency of Fiduciary Duty: Do you always act as fiduciaries, even when selling commission-based products?
By hiring a single investment advisor, you receive more streamlined advice as only one person manages all your money matters removing any chance of conflicting advice or any disagreement. This also allows the chosen individual to clear up your doubts and offer guidance to you on how to best attain your financial goals.
"Certainly, it's important to have an advisor you can trust, but you still want to keep the relationship professional," Notchick adds. "When that relationship becomes more like a friendship, high fees almost always mean the investor will pay the price."
The average client lifespan for a financial advisor is between three and five years, with 45% of clients leaving in the first two years. This is why financial advisors must continue generating new leads and building relationships, even after reaching their ideal clientele.
It's recommended that you use a fiduciary financial advisor in most scenarios. Not only are they usually more affordable, they are legally and federally held to high ethical standards. Their role, by nature, is designed to serve your best interest and maximize your financial benefit and not their own.
A disadvantage of a fiduciary is that fiduciary advisors are often more expensive than non-fiduciary advisors as they charge higher market rates. Also, just because a fiduciary has an obligation to act in a client's best interest, that doesn't guarantee that an investment will be successful.