Choosing a Financial Advisor
Armstrong Advisory Group
The world of 50 years ago was a lot different than it is today. An individual often worked at the same job all his or her adult life, lived in the same house, and stayed married to the same spouse. In those days, one spouse could support a family, paying for college ordinarily didn’t require taking out a second mortgage, and people could look forward to retiring on Social Security and possibly a company pension.
Today, your hopes and dreams are no different. Like most people, you probably want to buy a home, put your children through college, and retire with a comfortable income. But the world has become a more complex place, especially when it comes to your finances. You may already be working with financial professionals–an accountant or estate planner, for example–each of whom advises you in a specific area. But if you would like a comprehensive financial plan to help you secure your future, you may benefit from the expertise of a financial advisor.
When is it time to consult a financial advisor?
In many cases, a specific life event or a perceived need may prompt you to seek professional financial planning guidance. Such events or needs might include:
- Getting married or divorced
- Having a baby or adopting a child
- Paying for your child’s college education
- Buying or selling a family business
- Changing jobs or careers
- Planning for your retirement
- Developing an estate plan
- Coping with the death of your spouse
- Receiving an inheritance or a financial windfall
In these situations, a financial professional can help you make objective, rather than emotional, decisions.
However, you don’t have to wait until an event occurs before you consult a financial advisor. A financial advisor can help you develop an overall strategy for approaching your financial goals that not only anticipates what you’ll need to do to reach them, but that remains flexible enough to accommodate your evolving financial needs.
Some misconceptions about financial advisors
Maybe you have reservations about consulting a financial advisor because you’re uncertain about what to expect. Here are some common misconceptions about financial advisors, and the truth behind them:
- Most people don’t need financial advisors–While it’s true that you may have the knowledge and ability to manage your own finances, the financial world grows more intricate every day. A qualified financial advisor has the expertise to help you navigate a steady path towards your financial goals.
- All financial advisors are the same–Financial advisors are not covered by uniform state or federal regulations, so there can be a considerable disparity in their qualifications and business practices. Some may specialize in one area such as investment planning, while others may sell a specific range of products, such as insurance. A qualified financial advisor generally looks at your finances as an interrelated whole, and can help you with many of your financial needs.
- Financial advisors serve only the wealthy–Some advisors do only take on clients with a minimum amount of assets to invest. Many, however, only require that their clients have at least some discretionary income.
- Financial advisors are only interested in comprehensive plans–Financial advisors generally prefer to offer advice within the context of a client’s current situation and overall financial goals. But financial advisors frequently help clients with specific matters such as rolling over a retirement account or developing a realistic budget.
- Financial planners aren’t worth the expense–Like other professionals, financial advisors receive compensation for their services, and it’s important for you to understand how they’re paid. But a good financial advisor may help you save and earn more than you’ll pay in fees.
What type of services will your advisor provide?
Even if you feel competent enough to develop a plan of your own, a financial advisor can act as a sounding board for your ideas and help you focus on your goals, using his or her broad knowledge of areas such as estate planning and investments. Specifically, a financial advisor may help you:
- Set financial goals
- Determine the state of your current financial affairs by reviewing your income, assets, and liabilities, evaluating your insurance coverage and your investment portfolio, assessing your tax obligations, and examining your estate plan
- Develop a plan to help meet your financial goals which addresses your current financial weaknesses and builds on your financial strengths
- Make recommendations about specific products and services (many advisors are qualified to sell a range of financial products)
- Monitor your plan and periodically evaluate its progress
- Adjust your plan to help meet your changing financial goals and to accommodate changing investment markets or tax laws
How will your advisor be compensated?
There is no standard level of compensation in the financial services industry. Some advisors work on a fee-only basis, while others work on a commission-only basis. There are also advisors that work on a combination of fees and commissions. Which type of advisor is right for you? Consider the following:
- Fee based–You pay a fee based on an hourly rate (for specific advice or a financial plan), or based on a percentage of your assets and/or income
- Commission based–The advisor receives a commission from a third party for any products you may purchase
- Commission and fee based–The advisor receives both commissions and fees
You’ll need to decide which type of compensation structure works best for you, based on your own personal circumstances.
How will your advisor manage your investments?
You should ask your advisor if they will be designing the portfolio themselves or if they will use a third-party money management firm. If they will be designing and managing the portfolio, what type of research resources do they have available to them? Do they use industry research or have they made an investment in proprietary research tools, such as Bloomberg? Will you be working directly with them or will you be assigned to another advisor at the firm?
Have you been a do-it-yourselfer?
You may be comfortable choosing your investments and managing your portfolio for you and your family; but what if something happens to you? Many lifetime do-it-yourselfers have established a relationship with an advisor so that their spouse has someone to turn to if something happens to them.
Very few investors have the time, education, experience and inclination to manage their own portfolios. The financial world grows more complex every day and you likely need someone who is focusing on our changing economy on a full-time basis. Many investors prefer to work with a disciplined advisor who has their best interest and goals in mind.
Does your advisor offer a network of professionals?
No one person can have all of the knowledge and experience you may need in order to deal with all of the concerns that can impact your financial situation. It is important that your advisor has a network of experienced professionals that they can turn to in an effort to complement the services they provide. Outside experts may include legal, accounting and insurance professionals. Having a group of professionals that have experience working together can be an invaluable asset. This can provide a holistic, all-encompassing approach to your financial, legal and accounting needs.
What is the advisor’s succession plan?
Succession plans are designed to ensure that businesses survive when their current leadership is no longer in charge. This includes immediate succession plans for unforeseen departures, as well as long-term succession plans for when leadership decides to retire. It is important that your advisory firm has a succession plan in place so that your accounts to continue to be managed professionally without interruption should your advisor depart the company unexpectedly. Speak with your advisor to discuss the “what if” scenario of their own or the owner’s departure.
Who is their typical client?
It’s essential that you feel as if your advisor understands your goals and needs and knows how to address them. You should ask your advisor what their typical client is. Are they knowledgeable about the best way to generate income in retirement? The best time to collect social security? What to look for in an estate plan? The best way to pay for college? Their typical client should be like you, however, their financial plan should not be a cookie-cutter solution. Their recommendations should be tailored to your unique situation.
You should also ask your advisor how many clients they have and how much money they manage. How long have they been in business? Do they management money for individuals, families and small businesses?
How often do they meet with their clients?
Ask you advisor what they can expect for their fees. Will they meet with you once a year? Will they meet with you twice a year? Can you meet with them more often or on an as needed basis? Will they call you to proactively make changes to your portfolio? Can you call them throughout the year to speak with them?
Working with an advisor can offer you a range of benefits. A good financial advisor will take a holistic view of your financial situation and will consider your investments, legal needs, tax status, insurance needs, retirement objectives, income needs and more. They can take a non-emotional tact in managing your investments to help keep you on track towards your goals.
Securities offered through Securities America Inc., Member FINRA/SIPC and advisory services offered through Securities America Advisors, Inc. Armstrong Advisory Group and the Securities America companies are unaffiliated. Representatives of Securities America, Inc. do not provide legal or tax advice. Prepared in part by Broadrige Investor Communication Solutions, Inc. Copyright 2014. Please consult with a local attorney or tax advisor who is familiar with the particular laws of your state. AT 973925 – August 2014