When looking for a financial advisor, there are two important things to keep in mind. What kind of certification do they need and how do they charge. Knowing this information will help you to make a better-informed decision.
Here are a few certifications you may want to consider when hiring a financial advisor:
Certified Financial Planner (CFP) – they have demonstrated competency in all areas of financial planning and have studied more than 100 topics including stocks, bonds, insurance, taxes, and retirement planning. In addition to passing a certification exam, CFP’s must also adhere to the CFP Board’s code of ethics.
Chartered Financial Analyst (CFA) – this certification requires three years of qualifying work experience and passing three difficult exams to demonstrate their competency. They have an extensive knowledge of accounting, economics, and portfolio management.
Certified Fund Specialist (CFS) – this certification deals mostly with an expertise in mutual funds. They advise clients on fund investments and can buy and sell funds for clients.
While there are several other certifications available, these are the ones you’ll most frequently see and need to know as you’re looking for a financial advisor.
When talking to them though, it’s important to understand how they charge and what that may mean for you. There are several ways financial advisors charge, these are the most common:
Meeting with a fee-based financial advisor is probably best if you just want advice then want to implicate it on your own. Ask all the questions you want and get the information you seek during one or two meetings. The fee is charged on an hourly basis so the advisor makes the same amount of money no matter what you do with the information.
If there’s only one project you want help with, like setting up your retirement plan, this flat fee service charges you the same amount whether the project takes one hour or three. Not all advisors offer this option so be sure to ask.
This is probably the most common way for financial advisors to charge. They receive a commission for financial products they sell you like mutual funds or investment accounts. The pitfall to this way of charging is that you may not be receiving the best advice for you; the financial advisor may be advising you in the direction of a fund or investment that will pay him or her a higher commission.
Combination of Fee and Commission
Depending on the services you’re looking for, you may be charged a fee for some services and commission for others, although this is not as common.
If you have investments, assets, and stocks that you need to have managed for you, you may find that you want ongoing advice. A retainer is a flat fee paid monthly, quarterly, or annually and it doesn’t change based on the advice or return that you receive. Be sure to ask for a written description of the specific services you will receive in exchange for your retainer fee.
Fees and services vary based on your needs and the certification of the financial advisor you’re working with. Be sure to do your homework so you know which advisor and fee base works best for your needs.