The role of a financial advisor is to help you strategically manage your wealth over a period of time. As simple as that sounds, there are so many variations amongst financial advisors that it can be challenging to narrow down which one is right for you and your financial goals. We know it isn’t always easy to wade through the options and financial jargon, so to help assist you on your selection journey, we have a few tips on choosing the right financial advisor for you.
Begin by considering what kind of advising help you need and want. There are two parts to this; first, you need to decide what services you require from your financial advisor, and second, you should have an idea of how you want those services to be delivered. For instance, if you need assistance with estate planning, tax planning, and education funding, then you will need to select an advisor that is capable of helping you with all of those things.
Financial advisors can come in multiple forms. You may select a robo-advisor, a human advisor, or some combination of the two. Advisors of the digital variety have limited human interaction and may be more suited to routine decisions; often, robo-advisors can be a better fit for beginning investors or individuals with few financial complications. Alternatively, you could elect to go with an advisor that you can meet face-to-face with, but that comes with more questions as well. What level of contact do you want with your financial advisor? Do you want to be able to visit their office from time to time? Would you prefer to communicate exclusively online or over the phone? Every financial advisor will come with a different level of personal interaction; it’s up to you to decide what you feel most comfortable with.
Cost of Financial Advising
Digital financial advisors often have lower rates than humans, but there are tradeoffs for this. A digital advisor may have an annual fee of .25% of your total assets managed, but they may provide fewer services or offer less personalization.
Charging a percentage of the assets managed is common for human financial advisors as well. The median fee is about 1%. This percentage fee often increases for smaller accounts and decrease for larger ones, and some financial advisors will require you to have a certain amount of assets before they will take on you on as a client. With this method of payment, your financial advisor’s monetary incentives are linked to the success of your portfolio; if your account increase in value, their compensation also increases.
Other planners have set fees for financial packages or set hourly wages, neither of which are based on the value of your account. For instance, you may pay a specific amount for them to develop a retirement plan, or you may pay an hourly agreed-upon rate.
Alternatively, some financial advisors are paid based on commissions earned, either in conjunction with their other fees, or as their sole method of payment. These commissions can be earned on financial products, insurance sales, or transactions.
Morris Financial Concepts offers both the traditional percentage model if the client would like us to manage their investments, or we have a fixed fee option for clients who want financial advice without asset management. Regardless of the fee structure, we develop and help you implement a comprehensive and personalized financial plan.
Fee structures will vary by financial advisor. As you are seeking out your financial advisor, have an idea of both how you want to be paying and roughly how much.
Before you commit to anything, know how your financial advisor is paid. Some of the financial jargon that you may see is fee-only, fee-based and commissions. These payment structure can provide insight into the structure of the business, and any potential monetary incentives for the advisor.
Fee-only means that the advisor is only paid directly by the client for the services that they render, they will receive no other forms of compensation. Fee-only planners may charge a flat-fee, an hourly fee, or a percentage of assets under management, all methods described above. They cannot receive any commissions or kickbacks from other sources.
Fee-based planners are able to charge fees based on any of the above stated methods, but they can also receive commission for selling you investment or insurance products.
Commissions-based models are exactly what they sound like – all fees are earned purely based on commissions from the sale of investment or insurance products.
Qualifications and Standards of Care
There are many qualifications by which you can assess the eligibility of a financial services professional, but one of the key ones to look for is from the CFP Board. If your advisor is a Certified Financial PlannerTM (CFP®) professional, then that means that they are licensed and regulated by the CFP Board. CFP® certification indicates that the individual has reached a high degree of competence in personal financial planning determined by an educational requirement and certification exam, behaves ethically, and is committed to continuing their education in the field. In order to keep this certification, CFP® professionals must continue to take educational courses on finance and ethics.
Aside from looking at their credentials, we recommend that you also ask questions about their code of ethics and the standards to which they are accountable. There are two overarching types of standards that financial professionals abide by: fiduciary and suitability.
Advisors who are held to the fiduciary standard are legally obligated to put your financial interests first; any recommendations they make must be in your best interests. By contrast, the suitability standard only requires that the financial advice an advisor gives you is acceptable to your situation; it does not have to be the best option.
Finally, decide whether or not you trust them. The financial services industry runs on trust – so ask yourself if you feel comfortable allowing this financial advisor to play a role in your and possibly your family’s financial future. Are you comfortable asking questions? Are they good at explaining their answers, or do they try to confuse, impress, or intimidate? Does their style of wealth management, aggressive or cautious, align with your goals? You want to feel at ease with this person; you want to know that they are honest and worthy of your trust.
In addition to your gut feelings towards this person, we recommend that you do some basic research to ensure that the advisor has not been in any previous trouble with the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA). Both regulatory institutions offer online databases which are easy to search for any “disclosures” which will show criminal charges, formal investigations, customer disputes, etc. Check out these websites below:
We hope that this has given you some ideas of what to consider when choosing a financial advisor. For more information on financial planning and the services that we offer, we encourage you to contact us about our complimentary initial discovery session.
The opinions expressed herein are those of Morris Financial Concepts, Inc. and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice. Morris Financial Concepts, Inc. is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Morris including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request. MFC-19-04.