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7 Secrets Smart Professionals Use to Choose Financial Advisors

IN THE PRESS:

Feb. 8, 2021

Choosing a financial advisor is a major life decision that can determine your financial trajectory for years to come. 

A 2020 Northwestern Mutual study found that 71% of U.S. adults admit their financial planning needs improvement. However, only 29% of Americans work with a financial advisor.

The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests people who work with a financial advisor feel more at ease about their finances and could end up with about 15% more money to spend in retirement.

SmartAsset’s no-cost tool simplifies the time-consuming process of finding a financial advisor. A short questionnaire helps match you with up to three local fiduciary financial advisors each, legally bound to work in your best interest. The whole process takes just a few minutes, and in many cases you can be connected instantly with an expert for a free retirement consultation.

All advisors have been vetted and verified through a rigorous screening process. SmartAsset confirms each advisor is registered with the U.S. Securities and Exchange Commission (SEC) or the appropriate state regulator, possesses the proper licenses and has no pending or valid regulatory disclosures within the past 10 years.

Using these seven smart strategies when choosing an advisor can help you find peace of mind, and avoid years of stress.

Click Your State to Get Matched With Financial Advisors Near You

After you choose your state and answer questions about your financial goals, you can compare up to three advisors local to you and decide which to work with.

Investing involves risk and no situation is the same. This is in no way intended as a personal recommendation and investment decisions are solely those of the reader.

1. Always Hire an Advisor Who Is a Fiduciary

By definition, a fiduciary is an individual who is ethically bound to act in another person’s best interest. This obligation eliminates conflict of interest concerns and makes an advisor’s advice more trustworthy. 

All of the financial advisors on SmartAsset’s matching platform are registered fiduciaries. If your advisor is not a fiduciary and constantly pushes investment products on you, use this no-cost tool to find an advisor who has your best interest in mind.

2. Don't Hire the First Advisor You Meet

While it’s tempting to hire the advisor closest to home or the first advisor in the yellow pages, this decision requires more time. Take the time to interview at least a few advisors before picking the best match for you. 

3. Don't Choose an Advisor with the Wrong Specialty

Some financial advisors specialize in retirement planning, while others are best for business owners or those with a high net worth. Some might be best for young professionals starting a family. Be sure to understand an advisor’s strengths and weaknesses - before signing the dotted line. 

4. Don't Pick an Advisor With an Incompatible Strategy

Each advisor has a unique strategy. Some advisors may suggest aggressive investments, while others are more conservative. If you prefer to go all in on stocks, an advisor that prefers bonds and index funds is not a great match for your style.

5. Always Ask About Credentials

To give investment advice, financial advisors are required to pass a test. Ask your advisor about their licenses, tests, and credentials. Financial advisors tests include the Series 7, and Series 66 or Series 65. Some advisors go a step further and become a Certified Financial Planner, or CFP.  

6. Understand How They are Paid

Some advisors are "fee only" and charge you a flat rate no matter what. Others charge a percentage of your assets under management. Some advisors are paid commissions by mutual funds, a serious conflict of interest. If the advisor earns more by ignoring your best interests, do not hire them.

7. Do Not Hire an Advisor on Your Own

Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one. 

Our no-cost tool helps make it easy to find the right financial advisor for you. Now you can get matched with up to three local fiduciary investment advisors that have been rigorously screened for regulatory disclosures and to confirm their licenses. The entire matching process takes just a few minutes.

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SmartAsset is a personal finance technology company that features a financial advisor matching service. Financial Advisors who appear on SmartAsset are from companies with which SmartAsset receives compensation. SmartAsset takes into consideration wealth and location to determine how to match users with advisors. SmartAsset doesn't include the entire universe of Financial Advisors.

Sources:
1. Northwestern Mutual study
2. Value of a Gamma-Efficient Portfolio (2017), Morningstar Investment Management.
3. The Return on Advice (2016), Envestnet, Capital Sigma.
4. Value of a Financial Advisor Study (2017), Russell Investments.
5. Advisor Value (2014), Voya Retirement Research Institute.
6. Journal of Retirement Study