Choosing an Investment Advisor Who’s Right for Your Needs
So you’ve made up your mind about hiring an investment advisor and now you’d like to know which type is right for you. Now we go to the challenging part – finding that advisor who is competent and sincere at the same time. But again, financial advisors come in a variety of types. How can you tell which one is the best fit for you? Begin by looking into how much and what type of services match your requirements.
If you only want advice on investing and other simple financial matters, hire a brokerage firm, which typically earns purely by commissions. But take note that brokers are only required to practice what is known as a suitability standard of care, meaning they can only sell or suggest investment types that are right for the client and their financial goals. This includes no legal obligation to recommend the best or most profitable investments. This is exactly one of the reasons you need to do your research before hiring a financial advisor.
Certified Financial Planners (CFP)
Certified Financial Planners (CFP) are finance professionals who have satisfied all of the Certified Financial Planner Board of Standards’ requirements, including a minimum of experience and passing a board exam. Additionally, CFPs have to take ongoing courses to maintain status. CFPs have professional knowledge in several areas of financial planning, from insurance to taxes to estate planning and more.
Registered Investment Advisor (RIA)
If you seek investment advice and long-term financial planning, look for a Registered Investment Adviser. Such professionals are paid solely by the client, who is you, and they will only propose investments (for example, low-cost index funds, ETFs, etc.) that are perfectly aligned with your needs.
In addition, they need to uphold a fiduciary standard of care, which is broad and deeper in scope compared to the suitability standard for brokers. Thus, an RIA is legally required to prioritize the client’s interest above their own. Expectedly, you will be paying ongoing fees, and with a good RIA, you will be able to save on expenses through low-cost mutual funds, which are generally the best-performing funds.
Insurance Agents and Bankers
Insurance agents and bankers are neither investment advisors nor financial planners; however, they may be allowed to sell stocks, bonds, mutual funds, and similar investment products. Also, they can serve as financial planning consultants.
Finally, whomever you decide to hire as an advisor or planner, it is best to pick one with certification. Also seek referrals from friends, colleagues or anyone you trust, or read client reviews only before you decide whom to hire.