Financial planning is a complicated endeavor that does not stop with simply opening savings and certificate of deposit accounts. You need an expert who can advise you on the best investment and diversification strategies for building a solid portfolio to secure your financial needs. But before hiring a good advisor, it is essential to understand how the process works and how to proceed from here. These questions can be a starting point.
Here are the five questions you must ask a financial advisor:
- What are your qualifications?
Financial planning is a vast topic with several areas of specialization in practice. So, you need to understand whether the advisor provides assistance for financial planning in general or focuses on a specific aspect of portfolio building. Primarily, they practice with a Certified Financial Planner (CFP) qualification approved by federal regulatory authorities and guidelines for safe practices.
- What is the range of services you offer?
Their experience will vary depending on the type of services provided, ranging from planning for retirement to tax mitigation strategies and real estate trust services. Some CFPs work as fiduciaries, ensuring they keep your best interests at heart when planning and strategizing your finances. You must also check to confirm any disclosures on the record of previous misconduct or legal sanctions imposed on their range of services.
- Do you work for a commission or a fee-only structure?
Fees for professional services are one of the primary modes of payment for a CFP. But financial advisors can use multiple payment structures. So, you will have to confirm this before hiring them for a single session or keeping them on retainer. Discussing fee-only structures to avoid confusion and conflicts at the time of payment is better. You will also want to confirm “all-in costs,” as ambiguity in these terms can create hassles during payment.
- Is there a threshold on the minimum investment?
You might have a limited budget to work with, so discuss that when you meet your potential advisor. Financial advisors generally work with clients who can invest and maintain a minimum balance to keep the portfolio active.
- What is your investment philosophy?
While the end result is to make money with your investments, you must also discuss and understand the different ways of achieving this goal. Advisors adjust their investment strategies after considering the involved risks and other market factors. If you want a more conservative approach, discuss this with your advisor so your portfolio is not diversified among risky assets like stocks and mutual funds.