Sometimes we need the help of others. This is a fact of life, and one that also applies to our financial decisions. That's why some of us will seek the services of a financial advisor. Whether we lack the time to do a lot of research ourselves or we feel the need for a professional opinion, financial advisors can be convenient and helpful.

But you don't want to rush out and hire just anyone. Choosing a financial advisor is much like buying a car: it's a big decision, so you must consider many factors and know your criteria before making your purchase. Let's look closer at how the essential considerations in shopping for a financial advisor are like those involved in shopping for a car.

Design
First impressions are important, and the very first thing that gives you an impression of any car is its design. A car is characterized by its form, which reflects how and for what it is built. Financial advisors make their first impression by their designations: their professional status is shaped by the kind of education they have or the letters behind their names. Of course, the more letters there are, the more there is to indicate that the planner has extensive knowledge and commitment to his or her industry.

However, like some cars that have sleek designs but also a propensity to rust quickly, a financial professional may have letters that look good but are actually quite limited. There are now many different types of certifications, and not all have the same importance or weight, so make sure you know what the designations mean.

Reputation and Performance
Most of us definitely consider brand reputation when we decide to buy a car. Some of us will buy the tried-and-true makes that our parents bought, while others will take a risk with a newly introduced car company. Similarly, you may want to look for a financial advisor who has a longer track record, or you may decide to take a chance with a new graduate who is building the foundations of his or her reputation. Typically, financial advisors who have been around for a long time with a good track record will cost more than new graduates with little experience. That's not to say that the new graduates can't help you make profits or save money, but they do pose more uncertainty.

Experience is always an asset, but a long track record is not worth much if it isn't a good one. Make sure you find out whether your prospective financial advisor has had many complaints, and if so, look into how he or she resolved them. You can look into the advisor's track record simply by asking him or her about it, but you can also find out more by searching through the SEC records yourself.

Relationship
Buying a car is an important decision, and you want the person or company selling you the car to know this. A good customer service policy, including a willingness to accept your questions and concerns, is crucial to your relationship with a car dealership.

The same qualities are important for your relationship with your financial planner, who must exhibit a high willingness to communicate well with you. Ask yourself the following questions when reviewing your financial advisor relationship:

  • Does he or she plan to meet or speak with your regularly?
  • Will there be routine checkups, or does he or she plan to contact you only when something bad is occurring?
  • How often will your portfolio be revisited?
  • Does he or she exhibit a strong willingness to understand what goals you have set out, and has he or she thoroughly explained the intended approach to reaching these goals?

The product variable is a little more complicated. Just as a person working for a Ford dealership isn't going to try to sell you a Chevy, a financial planner working for one financial company probably won't encourage you to look at what another company offers (although some advisors will). However, a financial planner should primarily look out for your interests; and to do so, he or she needs a certain degree of independence. Make sure you determine whether the advisor is occupied foremost with helping you make financial gains or preoccupied by the obligation to make profits for a large mutual fund or investment company.

Options
Once you decide on a car, choosing the options it offers depends directly on what you need - you don't want to pay for an expensive option that is useless to you. If you live in Alaska, does the air conditioning package help you, or if you live in Florida, do you really need the block heater?

Your choice of financial planner will serve you best if you have a clear understanding of your needs and goals. While the meat of financial planning is typically the same everywhere, the available options and extras make a difference. For instance, does your planner offer tax advice, and what type of investment strategy does he/she have? Would your planner handle all of your investment accounts or only your retirement account? Make a list of exactly what you need from a financial professional, and then determine whether he or she offers you the appropriate services for the price you would be paying.

Conclusion
Deciding on the right financial planner, like picking the right car, is an important step that requires you not only to do some research and shopping around, but also to think about what you need and expect. Keep in mind that this article provides only a basic guideline of what you need to consider, so take your time and make sure you've covered your grounds. Just like the regret of buying an unreliable or unsuitable car, a bad decision on a financial planner can be a long-term burden in more ways than one. A poor advisor will not only prove to be a wasted expense but also a cause for lost profits, money-saving opportunities and even sleep!

Related Articles
  1. Professionals

    Why Financial Advisors Need To Earn The CFP Mark

    The CFP designation is heavily favored by both the finanical and the mainstream media and offers a wealth of benefits for certificants.
  2. Professionals

    Why Clients Fire Financial Advisors

    The reasons most clients fire their advisors are very simple and easy to address. Find out what you should be doing to keep your clients.
  3. Professionals

    Fiduciary Designations For Financial Advisors

    Attaining the AIF or AIFA could help both you and your clients enjoy a comfortable retirement.
  4. Professionals

    How Financial Advisors Are Leveraging Social Media

    As financial advisory clients are increasingly turning to social media, wealth managers who aren't following suit risk being left behind.
  5. Personal Finance

    7 Financial Advisor Red Flags

    Not all financial advisors are equally competent. When in doubt, watch out for these warning signs.
  6. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
  7. Mutual Funds & ETFs

    ETF Analysis: Vanguard Intermediate-Term Corp Bd

    Learn about the Vanguard Intermediate-Term Corporate Bond ETF, and explore detailed analysis of the fund's characteristics, risks and historical statistics.
  8. Insurance

    Whole or Term Life Insurance: Which Is Better?

    Learn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
  9. Retirement

    Overhaul Social Security to Fix Retirement Shortfall

    There are several theories and ideas about how we can make up for the $6.6 trillion retirement savings shortfall in America. Adjustments to Social Security and our retirement savings plans are ...
  10. Investing

    The 8 Best Business and Finance T.V. Shows

    With so many talking heads to choose from, which is the right show for your business and money matter needs? We review the best shows on now.
RELATED TERMS
  1. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
  2. Open Architecture

    The option offered by an investment firm to let its clients invest ...
  3. Advanced Diploma In Insurance

    A qualification earned by insurance professionals and conferred ...
  4. Associate In Personal Insurance ...

    A designation earned by professionals looking for training in ...
  5. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  6. Associate In Reinsurance (ARe)

    A designation earned by insurance professionals looking for reinsurance ...
RELATED FAQS
  1. What are the best ways to plan for retirement?

    Securing your future and that of your spouse or other dependent family members can seem like quite a burden. It is increasingly ... Read Full Answer >>
  2. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  3. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
  4. What are the benefits of hiring a Chartered Financial Analyst (CFA) to be my financial ...

    A Chartered Financial Analyst (CFA) has successfully passed rigorous coursework in the fields of economics, financial analysis, ... Read Full Answer >>
  5. What types of companies hire a chartered financial analyst (CFA)?

    The Chartered Financial Analyst, or CFA, program is a professional certification awarded by the CFA Institute. CFA candidates ... Read Full Answer >>
  6. How do I get started with a career in asset management?

    The asset management industry has a variety of different career paths. Depending on what asset management area you would ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!