Choosing a financial adviser is a big deal. These individuals are responsible for giving you advice about how to save, invest, and grow your money. A good financial adviser can put you on the path to a solid financial future, while others may steer you in the wrong direction.
As with anything that relates to your investments, it’s important to thoroughly do your homework so that you choose a financial planner who is right for you and your financial future.
Anyone can advertise themselves as a financial adviser. But simply saying you are a financial adviser doesn’t make you a legitimate expert. One of the most reliable credentials to look for is the CFP designation (which stands for certified financial planner). CFP means a person has successfully passed a rigorous test administered by the Certified Financial Planner Board of Standards.
Other tips to consider when choosing a financial planner is to ask about the adviser’s pay structure. In most cases, investors should avoid commission-based only advisers because these individuals may not always have a client’s best interests at heart. Rather, some may push certain financial products that benefit them via hefty commissions.
Conduct personal interviews with three or four prospective financial planners. Have a list of questions ready, including inquiries about the adviser’s investing philosophy. Be sure to ask if the adviser has ever faced an investigation by regulatory groups such as the Financial Industry Regulatory Authority or the Securities and Exchange Commission (SEC). You can check the compliance record of advisers and firms here. Also, ask for references of current clients whose investment goals are similar to yours.
Be on the lookout for red flags. This includes marketing hype by advisers who tout so-called investment guarantees. No one can make a guarantee when it comes to investments. Every investment contains some level of risk. If a financial adviser says he or she can outperform the market each and every time with a particular investment, it’s probably best to walk away.
The SEC offers several resources and additional questions to ask about selecting financial advisers. You can view that information here.