How to Choose the Right Financial Advisor?

source: indiatimes

It is normal to be confused when you're thinking of how to choose a financial advisor. Having a financial advisor eases making monetary decisions while getting loans or planning for retirement.

However, there are many fraud advisors who only aim to have your money and leave you in severe financial distress. The foremost aspect while choosing an advisor is being confident that it is not a scam.

Awareness of a financial advisor's professional skills and legal certification is vital in ensuring that you're not falling into a trap. A certified advisor has the expert experience that can help you achieve your goal smoothly with their expert service and guidance. 

• Look at Their Qualification: As mentioned earlier, the advisor's designation is crucial to ensure legal certification. If that person has many degrees, it'll be a positive sign, but it can't always prove their expertise in the field.

• Check Out Their Work Experience: Here comes the practical speciality. Devoid of the fact that whether the advisor is a numerous or less degree holder, years of experience proves their working ability. It means they have handled many clients long enough to have fluency in giving the best advice.

  More experience means they've faced different scenarios and challenges, making them aware of any possible risk factors. Moreover, they will effortlessly know how to profit by staying updated on financial stages.

• Look for Reviews: Even after being confident that this might be the right advisor for you, look for some reviews on their work. If the person gives financial advice to anyone you know, talk about how they felt about consulting that advisor.

  However, the SEC (Securities and Exchange Commission) recently announced that RIA (Registered Investment Advisor) could use testimonials to prove their expertise in their field. This will act as a mark of assurance and enhance their marketing purposes. They will also need to adhere to guidelines that don't disclose essential information.

  You can easily ask for such testimonials from the advisor.

Following are the different types of financial advisors you can choose from?

• Legally Registered Advisor: A SEBI-marked person is much better because they specialise in financial planning as advisors. You can also find a list of SEBI-registered investment advisor on their official website.

• Certified Financial Planner: This is one of the financial planners' highest standards when dealing with a person's economic strata. They are the advisors certified by the Financial Planning Standard Board after they pass different rules to be a personal financial advisor.

• Fee-Based Financial Advisor: These professionals focus on your needs first and guide you through the procedure to help you reach your goal. Thereafter they’ll redirect you to other people that will further help you in the financial process. 

  These advisors don't sell any financial products or make any kind of transactions. They only give a detailed overview of what investment options you're suitable for, their risks and profits and how you can avail it.

• Flat Fee Financial Advisor: In addition to the roles of fee-based financial advisors, flat-fee advisors suggest and sell products based on your purpose. It might be stocks, mutual funds, life insurance etc. Many fraudulent advisors belong to this category, where they will strategically highlight the positive points and hide the ones that might adversely affect you economically.

  Hence make sure to check the credentials of such advisors beforehand.

As mentioned before, initiating a frank conversation about your monetary needs, family status, and other necessary factors is ideal. This will help your advisor understand how they can formulate financial planning and suggest options. However, certain questions are crucial to know since you also want this process to be anxiety free. Listed below are some of these.

• What Is Their Experience and Qualification?: Ask the advisor about their years of experience to get a clear idea upfront. It'll enable in strengthening the trust factor based on this. It is better if they show their testimonial list by themselves, or you can ask for it.

  You can also question them on their qualifications and degrees. All of this will help you understand the level of their expertise.

• What Is Their Range of Services?: Curve out a rough idea of whether they can be your right advisor based on their services. See what kind of financial products they sell or not. Ask how they will financially plan your goal and see if it matches your preferences.

• How Much Do They Charge?: Know in detail about the fee structure and its calculations. Generally, it depends on the kind of services they give and if there are any transactional fulfilments for financial products. Ask for an estimated fee structure beforehand to make things easier for you to decide.

• Will They Provide a Written Proof?: It is easier to trick when financially crucial matters are discussed and concluded verbally. Hence ask for written proof of the services they'll be offering, charge descriptions etc. and get it signed or stamped.

A perfect alignment with the fee structure of a financial advisor sets everything in motion much faster. However, various factors listed below govern it and knowing those in detail will get you in a better position to discern the cost details.

• Assets: Financial advisors charge 1% of assets per annum, but they can highlight more on the costly ones in specific scenarios than the rest. Hence discuss the available options and decide yourself after knowing all the details. Go over their suggestions and make sure that it matches what you want.

• Commission: It is crucial to know whether your advisor is working on commission. In that case, they won't take money from you, but they receive a commission if you make a financial product transaction. Here too, they might focus more on selling the expensive product for a better commission which will hamper your goal.

• Service Charges: If the client receives better results from their guidance, they'll ask for additional fees in many cases.

  Finding the right financial advisors can be less tricky if you remember these essentials. However, there are more ways to see whether they can be the right fit for you. Hence you can always opt for your ways of being assured in addition to the above points.