To find the right financial advisor, start by defining your goals then look for a match. Suppose you are primarily interested in investment advice. A registered investment adviser or a financial consultant with a brokerage firm may help you shape your portfolio.
Alternatively, you may want an advisor who can go beyond your investments. You may want help with budgeting, home buying, healthcare, insurance, taxes, college funding, estate planning, etc.
In another situation, you might do your own investing so you don’t need an investment advisor. Even so, you may want assistance for some or all of the areas listed above. If you want an advisor who can provide comprehensive planning, someone who focuses mainly on investments won’t meet that need.
To find someone whose talents meet your interests, get three or four referrals and meet with each recommended advisor. You can compare presentations and pick the one with whom you’re most impressed.
When you work with a financial advisor you select, expect to pay. Before signing a letter of engagement, ask about the compensation arrangement to see if it makes sense for you.
* Commissions. Brokerage firms traditionally have charged sales commissions on trades. That may be cost-effective if you make few trades, which are based on the firm’s investment recommendations.
* Fees. Many brokers and investment advisors now offer to charge you fees that are based on investment assets under management. Annual fees are often in the 1-2 percent range. A firm that manages $500,000 of your money might charge $5,000-$10,000 a year.
With these fee-based accounts, you don’t pay a commission on every trade. Therefore, your broker has no incentive to churn your account and accumulate sales commissions. Instead, the advisor has an incentive to make your account grow, because the asset management fee will grow, too.
* Other arrangements. If your advisor doesn’t manage your money, an asset-based fee account won’t work. If you want comprehensive financial advice, you might pay your advisor hourly fees or an annual retainer.
In any case, you should know how your advisor gets paid and whether that method is best for your situation.