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Is Your Financial Advisor Really Helping You?

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Hiring a financial advisor is critical for the success of your financial plan to a large extent. A financial advisor can come on board and simplify a lot of things. More importantly, with professional experience, the advisor is bound to know a lot more than you would. This helps the professional leverage their qualifications and understanding to help you grow and achieve your goals. Financial advisors also offer a host of services and overlook several critical aspects of your financial plan, starting from simple budgeting and using a 401(k) or an Individual Retirement Account (IRA) to planning your estate, strategizing tax reductions, investing in stocks – domestic and global, and a lot more.

If you are in the category of high-net-worth individuals, you can hire a financial advisor for many other services, too. Wealthy investors can have varied investments like international stocks, investments in startups, collectibles, gold, real estate, cryptocurrency, and more. These, along with an enormous estate, can require round the clock professional assistance. If you are looking to build an investment portfolio, save for retirement, reduce your debt or need assistance with some other financial goal of yours, consult with a professional financial advisor who can guide you on the same.

However, irrespective of your financial worth or requirements, it is important to pick a good financial advisor who can help you attain your financial objectives. Unfortunately, it can be challenging for most people to understand whether or not their advisors are helping them in the capacity they hope for. The stock market is volatile, and the returns can always differ from your expectations. In such a scenario, pointing out the mistakes or miscalculations of a professional can be challenging. But there are some hints that you can pick up along the way. In addition to this, you can also consider some questions to ask your financial advisor to arrive at a conclusion about their competence.

Before you start with the different ways that can help you gauge your financial advisor’s caliber, it is essential to know how these professionals work and how you can prepare beforehand to ensure you pick a good one.

How does a financial advisor work?

A financial advisor can help you in different ways. The advisor’s role in your financial plan will differ based on what you hire them for. For instance, if you need help with debt management, the advisor’s primary role would be to help you lower your debt liabilities by settling them at the earliest. In this case, they can help you reduce your other expenses to make way for your high-interest rate loan repayments. They can help you consolidate your loans and also push you to avoid taking on more loans to stabilize your credit score.

This is just one example. Typically, financial advisors can help with the following services:

  • Retirement planning
  • Education planning for a child
  • Consolidating finances in the case of a marriage or divorce
  • Tax planning
  • Budgeting
  • Estate planning
  • Investment planning
  • Savings
  • Emergency planning
  • Healthcare planning
  • Real estate planning
  • Business planning and more

If you find yourself struggling with any of these, you can consider hiring a financial advisor to help you. However, it is crucial to understand what to know before meeting with a financial advisor too. This can help you pick the right person to handle and manage a very critical aspect of your life.

What to know before meeting with a financial advisor

Here’s a list of some questions to ask financial advisor before you hire them:

1. What are your credentials?

The first thing that can help you understand your financial advisor’s competence is their level of education. You can ask the advisor about their qualifications and degrees. Look for certifications like CFP: Certified Financial Planner, CPA: Certified Public Accountant, CFA: Chartered Financial Analyst, ChFC: Chartered Financial Consultant, IAR: Investment Adviser Representative, RIA: Registered Investment Advisor, CFF: Certified Financial Fiduciary, etc. Hiring a fiduciary can be an added advantage as fiduciaries are legally bound to act in your favor over their own interests.

2. What is your fee structure?

Money is a significant component of your association with a financial advisor. The professional should be in your budget, or the association becomes difficult to handle and carry on with for the long-term. There are different types of financial advisors based on their fee model. These professionals can charge you monthly or per product. For instance, for every investment the advisor recommends, they would charge a commission on your investment. Some advisors also charge a percentage of your total assets under management. In addition to this, you can hire a professional for the hours that you consult with them. This could be ideal for you if you do not want to hire someone full-time.

3. How much time can you devote?

Financial advisors may be handling several clients at a time. So, it is advisable to ask them if they can devote enough time to you. Depending on your availability and needs, you can ask for as many or as few meetings in a month. If you want to catch up with them every week, it is important to clear that out in your first meeting.

Once you have hired a financial advisor, it is time to know if they are on the right path or not.

How to know if your financial advisor is helping you

Here are some things to consider after a financial advisor has worked with you for some time:

1. Check if your goals have been met or your concerns addressed:

One of the first things you can do is see how far along are you in your journey to achieve your goals. For instance, if you hired an advisor six months ago to manage debt, you can compare your debt liabilities now with six months before and see where you stand. While it may not always be possible to achieve your goals in such a short span of time, a comparison can still help you understand where you are and how much you have progressed. As long as you see an upward trend in performance, you should have little to worry about. However, if your situation seems the same and you are struggling with similar issues and concerns as before, you may consider hiring a new financial advisor or having a word with your present advisor to improve things.

Having said that, it is essential to set a realistic timeframe to judge things. The financial advisor cannot make miracles and would require ample time to work out your problems. Being mindful of their requirements and setting reasonable goals can be necessary.  

2. See if your financial advisor listens to you or not:

Your meetings with a financial advisor can be long and comprehensive. They can entail several components and topics ranging from budgeting and investments to healthcare and retirement planning. There are also several things in between these broad goals, such as the fear of losing your job or the need to buy a child an expensive present for a special occasion. These smaller but significant events can be critical in a financial plan. For instance, if your financial advisor takes cognizance of the fact that you fear losing your job in the time to come, the professional may ask you to increase your emergency fund. They may also ask you to shift some of your money to more liquid investments in anticipation of an event where you may not have a salary to bank upon.

Likewise, if you want to gift your child a car, the advisor can help you liquidate some of your savings or plan your monthly budget in a way that you do not fall short of your goals and, at the same time, are able to gift your child a car. These digressions may not necessarily be on the agenda, but a good financial advisor is likely to pick up on your conversations and prioritize your short-term needs along with your long-term goals.


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3. Check if the financial advisor is taking a comprehensive look at your finances:

Financial planning is a cumulative effort to secure your future financially. It can require you and your advisor to go above and beyond in many situations. A good financial advisor should be able to understand this and deliver on several fronts. For instance, while you may be busy planning for your retirement, your current tax output could increase if you select a Roth IRA as your withdrawals would be tax-free, but you would pay tax right now. Additionally, if you have a large estate, you may have to pay estate tax and can lose a significant chunk of your assets to it. Therefore, see how the advisor manages your overall finances. For instance, if you hire a financial advisor for estate planning, their job can include drafting a will, creating a trust, setting up health directives, etc. Additionally, it can also involve overlooking the tax implications of your estate on you and your inheritors. If the taxes are high, your advisor can recommend gifting as a means to lower your tax. This may not necessarily be something you ask them to do but something they do on their own based on their expertise and past experience.

4. Keep track of how they customize your plan with changing times and needs:

Any recent event in your professional and personal life could demand a change in your financial plan. A change in careers, a change in your city of residence, marriage, divorce, having children, suffering from an illness, etc., can all impact your finances. If you were single when you first hired your financial advisor but are now married and expecting children, your financial advisor should be able to foresee your future financial requirements and make amends to your plan accordingly. For example, you may require a more aggressive investment strategy if your future financial responsibilities increase. In some cases, if your spouse has a poor credit score, it may even affect your future standard of living if you and your spouse apply for a joint loan. Further, if you get a promotion and land up in a higher tax bracket, check how soon your financial advisor is able to devise a tax-saving strategy to not let a high income impact your tax output. The stock market is also susceptible to volatility. Keep a check on how your financial advisor deals with this market volatility and how agile they are to adapt to it and help you make the most of it.

5. Mark them on accessibility, transparency, and proactiveness:

Pay attention to how receptive the financial advisor is to your needs and concerns. Keep a tab on how many times you communicate with each other and if the advisor is open to the idea of more or less as per your needs. A good financial advisor is someone who listens to you and is open to your end of suggestions. If your financial advisor keeps the chain of communication open and transparent, you can be more confident of their interests and contributions. Has there ever been a time where you felt the advisor was more driven out of their personal welfare than yours and recommended a product aggressively to you? If yes, the financial advisor may have been more focused on making a profit for themselves. Likewise, has your financial advisor ever created the urgency to invest somewhere or do they follow a balanced investment approach? This can help you gauge if they research well or merely follow short-term investment fads.

To conclude

Financial planning is often looked at as a long-term exercise. The fruits ripen in the future even though the hard work and strategizing are done in the present. It may be hard to pinpoint precisely whether or not your financial plan is working. However, understanding the role of an advisor and what to know before meeting with a financial advisor can help you pick the right one. In addition to this, you can also keep a tab on the suggestions mentioned above to make sure that your association with the advisor remains productive in the long run.

If you have still not hired a financial advisor or wish to hire a new one to enable you to achieve your financial goals and objectives, you can get in touch with a professional in your area. Use the free advisor match service and get matched with 1-3 vetted financial advisors that can help you with your unique financial needs and goals.

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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice.
A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.