March 4, 2020
How to find your financial advisor
As you begin to talk with advisors, you’ll want to evaluate them objectively. Asking each advisor a consistent set of questions will help ensure that you have the information you need to make a good comparison.
To choose an advisor you feel comfortable with – both personally and professionally – it’s smart to take your time, talk face to face, and ask the right questions to help you make an informed choice.
How do I choose the right advisor?
Whether you’re starting with a list of recommended advisors or you have a specific advisor in mind, starting with the three questions located in the boxes below can help you make a thoughtful choice.
01.
What are my goals and preferences?
Consider these factors: risk tolerance, time horizon, income, taxes, and holdings.
Being able to clearly articulate your needs and expectations will help you and the advisors you talk with make an informed decision about whether you’re right for each other. If you are an individual investor, your advisor should understand your goals and your particular financial situation.
02.
What investment services do I need?
Consider what level of investment and advisory services you need. For example, some advisors provide clients with a pure investment management relationship while other advisors provide clients with sophisticated financial planning and advisory services in addition to investment management services.
03.
What is my preferred communication style?
You should also consider the nature of the client relationship that you would like with an investment advisor, including the frequency, level, and form of communication you would like to maintain with the advisor. How often would you like to communicate with your advisor? Would you like to communicate only by phone and email, or would you prefer to discuss your investments in person?
Questions to ask advisors.
Knowing how your advisor is compensated may help you evaluate the relative objectivity of the recommendations you receive. Independent advisors generally work on a fee-only or fee-plus-commissions basis.
Types of compensation and what they mean to you:
- Fee only
Asset-based, hourly, or flat fees: Many independent advisors charge a percentage of the assets they manage for you (typically 1%–2%). This compensation method gives your advisor an incentive to help grow your assets. Hourly or flat fees are often associated with a specific, one-time service (e.g., developing a financial plan). In addition to these fees, you may pay commissions and/or other fees for execution of the trades your advisor makes and for custody of your assets.
- Fee plus commissions
Along with an advisory or financial planning fee, some advisors may receive a portion of the commissions you pay when you buy or sell certain financial products the advisor recommends, such as insurance policies or annuities.
- Commissions only
Advisors sometimes receive compensation only from sales commissions on the investments they buy and sell for you.
- Wrap fees
Sometimes advisors charge a wrap fee, which is typically a single asset-based fee for the advice they provide and the execution of the trades they make.
Independent financial advisors typically use independent custodians – generally brokerage firms or banks – to hold and safeguard their clients’ stocks, mutual funds, and other assets.
Why should you ask this question?
You want to be confident that your advisor has chosen a custodian that meets or exceeds the security measures required by industry regulators to help protect your assets.
- Look for a custodian with important services, such as trade execution and preparation of monthly brokerage statements, which allow your advisor to concentrate on managing your portfolio.
- Ask about the custodian’s policies to help protect personal and financial information from unauthorized activity
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