How to Choose a Financial Advisor

(Six-minute read time)

Your finances are important. Your finances are what ultimately provide you with comfort, security, and the means to pursue your goals and fulfill your passions in life.

Enlisting a professional to help you navigate finances can improve your portfolio performance and give you peace of mind. However, you don’t want just any financial advisor – you want the right financial advisor for you and your particular financial goals. So, how do you choose the right financial advisor? 

Understanding Financial Advisor Designations

It is essential to understand the different levels of financial advisory qualifications and their differences. What sets advisors apart from one another are education, training, experience, and qualifications.

The term “financial advisor” is broad, and envelopes a lot of designations within it. Financial planners are one type of financial advisor, and they are split into three groups: Certified Financial Planners, Personal Financial Planners, and Registered Financial Planners. This glossary from the Investment Industry Regulatory Organization of Canada can help you understand the various designations as you seek to find a financial planner or advisor.

In general, a financial advisor is a general term that applies to anyone who can help you manage your money, while a financial planner is a type of advisor who can help you to create a plan to reach your long-term financial goals.

Each of these designations comes with different requirements, so be sure to ask your potential advisor about their education and designation. This should help you to determine whether they have the right form of specialized training needed to help you reach your financial goals.

Try Our Quiz: What is Your Bias?

Determine Your Financial Goals

What are your personal financial goals? The world of finance is vast, and you should seek a financial advisor who specializes in the areas of finance that are most relevant to your needs. Consider things like:

• Investment advice

• Debt management

• Budgeting aid

• Insurance coverage 

• Tax planning

• Retirement planning

• Estate planning

• Education planning

You can pick and choose which items from this list are amongst your financial priorities, as well as anything else that may not have been listed here. The important thing is that when you head out to find a financial advisor to help you achieve your goals, you have those goals clearly defined and at the forefront of your mind.

Need some help determining your financial goals? Try our quiz: What is Your Bias?

Ask the Right Questions

Once you know your goals, it’s time to determine what information you want to know about any potential financial advisors you may consider, and how you’ll use that information to sway your decision. Prepare beforehand to ensure that you make the most of your consultation time, and plan to ask questions like...

What’s Your Investment Philosophy?

If investing is one of your financial goals, it’s important that you understand your financial advisor’s personal investment philosophy, and make sure that it aligns with your own.

This encompasses things like risk tolerance, asset classes, capital allotment, and general portfolio management strategies. There is no one correct answer regarding how to invest successfully – what matters is that you and your financial advisor are on the same page. 

How Often Will We Chat?

You and your chosen financial advisor will be engaged in an ongoing professional relationship. As in any relationship, communication is important! Before choosing your financial advisor, discuss how and how often you’ll keep in touch regarding the performance of your financial portfolio.

Discuss how often you’ll meet to touch base once all initial processes are complete. A typical advisor will touch base with their clients on average twice per year, to see if there have been any changes regarding your goals or risk tolerance that will impact your financial strategy moving forward.

What Sort of Clients Do You Usually Work With?

If you get sick, you want to be in the care of a doctor who’s an expert regarding your particular illness. If your car breaks down, you want a mechanic with a strong track record of fixing that particular problem! The same concept applies to financial advisors.

Look for financial advisors who have experience with clients who are in a similar boat as you, and who have worked toward goals similar to yours. While advisors are required to keep their clients’ information confidential, you can – and should – ask about their track record with clients whose portfolios and goals are similar to your own.

What Information Do You Need from Me?

The right financial advisor is one with whom you can be open and transparent and who will provide the same to you. When you meet with an advisor to discuss potentially hiring them to work on your finances, be sure to ask what information they’ll need from you so that you can be prepared and get the ball rolling smoothly.

Most advisors will ask for similar information including things like pay stubs, tax returns, real estate holdings, and budgets. Some elements may vary, but it's best to clearly understand what’s expected of you when choosing your financial advisor.

What Is Your Approach to Financial Planning?

This is an open-ended question, and the answer will likely be very helpful in deciding whether or not you’d like to hire a prospective advisor. Many individuals have very contrasting views when it comes to finance and planning, and that’s a-okay. What isn’t okay is for you and your advisor to have opposing views about financial planning.

Regardless of how they choose to answer, it's important to verify that their response is in line with your own values and comfort level. Remember, an advisor's role is to provide guidance and not to force a decision upon you. Establishing mutual understanding and agreement from the start is critical to achieving success in the future.

How Do You Structure Payment?

Depending on the sort of service you receive from your financial advisor, the method of payment may differ. In some cases, you’ll be expected to pay an hourly fee to an advisor, while others will receive a commission or trading fee if they’re purchasing and trading assets on your behalf. Advisors may also receive a percentage of the value of the assets that they manage for you, otherwise known as the “management expense ratio.”

Whatever the case, both you and your advisor need to be on the same page about fees and costs. Your advisor should be clear and transparent about how they get paid. This aspect of choosing a financial advisor doesn’t have to be awkward, and it’s important to get those points clear early on in the process.

Consider Compatibility

Once you’ve asked all relevant questions, take a moment to consider general compatibility. The client-advisor relationship certainly doesn’t require that you be best friends, but you do need to be able to trust your advisor and have faith in their competence. If you can’t, they’re likely not the right financial advisor for you. If you can, then congratulations! You’re well on your way to strengthening your financial strategy and meeting your financial goals.

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