How to Choose a Financial Advisor?

Retirement: Planning for the Financial Aspects

When it comes looking for financial advice do you know the difference between consultants, counselors, financial advisors and planners? Don't worry, most people do not know the difference. Many individuals find themselves confused about who's who and who does what within the financial industry. This complex but important task of acquiring the knowledge of who you can and cannot trust for financial guidance is a must. But due diligence is required and questions need to be asked like: are the needs being presented by your advisor or broker the best option for your future requirements. Are they providing you with cost-efficient choices? Are they able to balance all your future needs? Unless you are a financial insider you need to read this article further to find out how the confusing financial world works.

Start by Checking Your Financial Advisor's Credentials

In an effort to shield yourself from inappropriate and potentially devastating financial advice, you need ample information about the person you're about to accept financial advice and direction from. You need to understand how your financial advisor's role will play into your personal life as well as their personal credentials. You should ask for these directly prior to any significant decisions or commitments being implemented.

Avoid putting all your trust and faith in the person providing you financial advice. It is imperative that you consider any recommendations and make sure that these recommendations are net benefits to you and not  benefit just the advisors financial interests. This is important, as in most financial industries, a commission is paid based on the products sold. This inevitably dictates some financial advisors advice, and they may be prone to pushing certain products even when they are not in their client's best interest. Take the time to understand which financial professions have a legal responsibility to represent your best interests and come to an understanding between all parties involved to uphold high professional standards.

Fiduciaries: Is your advisor legally bound to represent your best interests

Is your current advisor, subject to the responsibilities and laws of a fiduciary? A fiduciary is required legally to recommend products that are in the clients best interests. When compared with other financial professions a fiduciary is held to the highest of standards. They must meet stringent disclosure requirements, exercise prudence, required to act in good faith, can be held liable and are regulated. However, do not be fooled, out of the many “financial advisors” approximately 10 to 15% are truly fiduciary responsible. Just because somebody tells you they are looking out for your best interest does not make it so.

Registered Investment Advisor

You need to make sure that your advisor, is it a registered investment advisor. This should be one of the first questions you ask. This special designation means that an advisor has registered with a state regulatory agency or with the SEC (Securities and Exchange Commission), these agencies require registrants to be held to higher standards of fiduciary responsibility. Another important issue to discuss with your financial advisor is your future needs. Since you may be looking for in-home care, assisted living or skilled nursing home care is important to make sure that your financial advisor has experience in these areas.

Surprisingly, 85 to 90% of financial providers are non-fiduciaries, these include such individuals as stockbrokers, insurance agents, bankers and other representatives providing a variety of services in the financial products industry. These types of individuals are less regulated and thus you should ask the question, who are they legally responsible to? In addition to the aforementioned question. You need to understand, who benefits from financial recommendations made by your advisor. Ask these questions.

The SBC's position has been made clearer thanks to a March 2007 ruling, which delineates the differences for financial advisors who are and are not fiduciaries, which also includes their compensation with regards to financial issues. One drawback to this regulation is that it is less stringent for the so-called advisors, consultants, agents or counselors. These titles are often used to entice consumers into thinking that they are real professionals. Unfortunately, they are not and in most cases. Their recommendations are driven strictly their own benefit.

It is important to do your due diligence in establishing your advisors legal ability and adheres to any regulations in order for you to receive the maximum benefits from their device. Also take into consideration their education, experience, resources and personal character as these will all provide real value in the guidance that you receive from them. Avoid placing your trust in words and make sure that due diligence has been done in achieving an accurate evaluation of your advisor's potential.

Unfortunately, financial abuse is often being directed directly at seniors. By offering creative, or deceptive financial advice and products. Many of these products are marketed as a present solution for retirement needs, but they failed to include the actual costs or potential impact it may have on clients. Even scarier, perhaps is the fact that not only are consumers of these bogus financial instruments being duped, but the individual selling them also does not fully understand the financial ramifications involved in the products. As a result, there is no way to know how detrimental the impact of these financial products may be until long after the sale is completed.

The majority of financial products have their time and place. It is important for financial advisors to know the products available , and the options that they provide in order to offer you a best fit scenario. Therefore it is important to make sure that your advisor is legally bound to include your best interests over their net gain. It is also necessary to make sure that the total costs are included in the products that are financial advisor recommends.

Your Advisor's Pay

Your advisors method of compensation can be in important aspect of their overall performance. In many instances, an advisor is paid a commission based on product recommendation. However there are alternatives to this commission based compensation package. These include: flat rate service fees, management-based fees (percent based on the amount of assets), and hourly rate.

Unfortunately, the issue of compensation has been a long and continuous question is easily answered by asking this question: Are you benefiting from your advisors recommendation or is somebody else? There's a conflict of interest exists with regards to any financial recommendations? Has your advisor been honest and clear in disclosing what the actual cost to you will be? In addition, you need to be a realistic and understand that you cannot ask an advisor to work for free. Considering the before mentioned, pay alternatives consult with your advisor to see if one of these woods better suit your needs. Rather than having the advisor work on commission. The true issue is where your advisor's loyalty lies. Check your advisors background, knowledge, education, credentials and expertise and inquire about their fiduciary responsibilities in order to find an advisor that fits your financial needs.

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