Seeking professional advice is always a big step. But when you’re dealing with wealth management, you want to ensure that the advice you’re receiving lives up to the hype.
How can you be sure that you’re getting sound advice, from a potential financial advisor? In this post, we’ll highlight 3 important questions you may want to ask any financial advisor before you commit to using their services.
1. Do You Rely on Fees or Commissions for Your Services?
Some financial advisors charge a flat fee for their services. This typically includes an upfront retainer fee, as well as an hourly rate for services provided. Other financial advisors work on commission, which means they receive a commission when they buy or sell financial products to clients.
Advantages of Fee-Based Financial Advisors
While a commission-based financial advisor won’t necessarily act unscrupulously, offering commission isn’t always the best way to ensure that a client’s needs come first. It’s possible that commission-based pay may pressure the financial advisor to serve the needs of the institution he or she works for first, rather than the client.
But what incentivizes a fee-based financial planner? If they only receive a flat fee, what motivates them to put the client’s needs first? Typically, their fee also includes a certain percentage of the assets they manage. This mutual benefit may motivate an advisor to help you make sound decisions about your investment strategy.
Ask Before You Commit
Because of the advantages of a fee-based financial advisor, you may want to ensure that you understand all of the fees upfront. This includes any upfront fees, hourly fees, and the exact percentage they expect to make from your managed assets.
2. What Are Your Credentials?
It’s easy to set up a financial planning website and call yourself a professional. But within the industry, there are professional designations that can give credibility to your financial advisor. These designations have some specific implications, and we’ll cover each below.
Certified Financial Planner (CFP)
A certified financial planner has received rigorous training and can help with a variety of financial planning issues ranging from basic wealth management to long-term investment strategies. They also typically work for fees rather than commissions. They can be found at many independent firms.
Chartered Financial Consultant (ChFC)
A chartered financial consultant (ChFC) offers similar services to a CFP (above), though the credentialing process is slightly different. A ChFC often has some additional experience when it comes to estate planning and tax planning.
Certified Public Accountant (CPA)
A certified public accountant (CPA) is less likely to serve as a comprehensive financial advisor, but they can be a valuable asset when it comes to tax planning and tax law.
Chartered Life Underwriter (CLU)
A chartered life underwriter (CLU) can assist you with life insurance policies. Because some permanent forms of life insurance may have an investment component, a CLU can offer helpful advice for long-term financial planning.
Certified Fund Specialist (CFS)
A certified fund specialist can help you with financial planning through their mutual fund knowledge. They can guide you through the risks of investing, as well as provide insight on the best practices for today’s investors.
What Is Your Investment Philosophy?
It’s important to select a financial advisor whose goals mirror your own. While it’s not uncommon for financial advisory services to toss around insider jargon and make big promises, you need to understand the nuts and bolts of what their services specifically entail.
To that end, you want to understand two related concepts: Which benchmarks they use for success and how active they are in managing their clients’ portfolios.
Understanding Benchmarks
In the investing world, a “benchmark” is the yardstick by which performance is measured. It determines the overall health—and growth—of a financial asset, such as a mutual fund, bond, or stock. But it’s important to select the right benchmark for your investment strategy.
For example, if your portfolio includes diverse investments, it’s not wise to measure your success by the S&P 500, which only reflects large-cap, U.S.-based companies. Instead, the advisor should rely on evolving benchmarks that reflect the character and quality of your investment portfolio.
Active Portfolio Management
Some financial advisors adopt more of a conventional approach to investing, investing in a few reliable companies and waiting to see what happens.
Instead, you may want to choose a financial advisor that is committed to active portfolio management. This means that your advisor is accountable for making decisions that should help increase the value of your investments and striving to reach your long-term goal.
This is one of the advantages of pursuing a financial advisor from an independent firm, such as Humanity Wealth Advisors. Independent advisors are unencumbered by the needs of a wirehouse, bank, or other financial institution. They are therefore well equipped to focus on their client’s portfolios rather than pushing the products of their firm.
The Advantage of Humanity Wealth Advisors
Humanity Wealth Advisors was founded by a single governing principle: That the everyday individual is our greatest bottom line. That’s why our team is committed to your success instead of maximizing our commissions.
Our fee-based services include advice and support tailored to your needs, and we provide guidance in plain, ordinary terms (without all the industry jargon).
With over 20 years of financial experience, we help our clients develop a clear, holistic plan to build their financial futures. When you’re ready to pursue financial planning, contact our team of friendly, reliable professionals.
