Finding a financial advisor may seem like a daunting task. For one thing, the number of potential titles – not just financial advisor, but financial consultant, wealth advisor, financial planner and investment advisor, among others – is long. Not only that, but the services and standards that separate one title from the next aren’t always clear.
It also isn’t obvious what a given title tells you about the services or quality available. Some financial consultants, for instance, may be brokers who can advise you on portfolio strategy, but they may know comparatively little about taxes, insurance and other important aspects of a financial plan.
Fortunately, I believe there are 6 traits to look for in Baton Rouge. These traits will help you find a comprehensive financial advisor who meets your needs.
1. The Fiduciary Standard
Many Americans don’t realize that financial advisors can be held to different standards, but it’s true. Some financial advisors, like those who work for Align Wealth Partners, are held to a fiduciary standard. Others are not. The fiduciary standard is the highest.
Fiduciaries are regulated by the U.S. Securities and Exchange Commission (SEC). They are required to put their clients’ interest above their own, to give sound and accurate advice and to exercise a high standard of care and trust. When evaluating investments, for example, a fiduciary must disclose any conflict of interest.
Financial advisors who are not fiduciaries are held to a suitability standard, overseen by the Financial Industry Regulatory Authority (FINRA). The investments and products they recommend must be suitable for their clients’ stated goals, but these advisors are not required to put your interests above their own.
Brokers who know your goal is primarily conservation of capital, for example, should be recommending conservative and stable investments, not aggressive growth or speculative stocks, under the suitability standard. But in executing trades, these brokers could choose a commission structure more advantageous to them. A fiduciary might not, because a higher commission may be more money than you need to pay, and thus against your financial interests. Fiduciaries must place your interests above their own.
When interviewing financial advisors, ask if they’re fiduciaries, and get the answers in writing.
2. The CFP Certification
A Certified Financial Planner (CFP), like those work for Align Wealth Partners, is required to have comprehensive financial knowledge. The CFP certification is given only to advisors who complete specific requirements set by the Certified Financial Planner Board of Standards. This includes course completion, passing the CFP Board’s exam, demonstrating several years of industry experience and upholding the CFP Board’s standards of conduct.
The CFP exam covers financial planning principles, investments, education planning, risk management, insurance, tax planning, retirement planning, estate planning and professional conduct and regulations.
Choosing a CFP can help you decide whether the person you are trusting with your future knows all the aspects required in an overall financial plan.
3. Regular Communication
A financial advisor should, of course, have a comprehensive meeting with you initially to talk about your financial life, your goals and your objectives. A good financial advisor should communicate with you regularly from there. At a minimum, the financial advisors in Baton Rouge provide monthly reviews of market performance, quarterly reviews of your portfolio and annual reviews of your plan.
Ideally, you will meet with financial advisors when any major changes in your life occur, such as marriage and divorce. These events can affect your entire financial life, so it’s important to review your goals for assets and estate planning, as well as your taxes and any other potentially affected areas.
4. Transparent Fees and Commissions
Take note: Financial planning services are never free. If an advisor tells you that they are, he or she is typically paid in hidden fees, commissions or by product companies. While this might sound good, as it “costs you nothing,” beware. Hidden fees and commissions typically come out of your overall portfolio. People are fooled by these tactics every day.
Remember this: The professional financial advisors in Baton Rouge work on a fee-only basis, meaning they only accept payment by the clients for services provided. A financial advisor should disclose any fees and commissions to you in a totally clear and transparent way – and they should to be discussed or shown to you before a transaction occurs. There should be no hidden fees or commissions.
Clear fees and commissions are one of the reasons choosing a fiduciary as your financial advisor is important. Financial advisors who are not fiduciaries are not held to the same standards of transparency and disclosure. Non-fiduciaries may, for instance, sell you stock or insurance that their firm is involved with and sells at a higher commission or fee than other, similar products.
When choosing between financial advisors, quiz them about their relevant experience. If you are choosing a CFP, they will have several years of experience, but it can be beneficial to find a financial advisor who has worked with clients like you; clients who have similar situations to yours, be it a line of work, a life situation or a family make up.
It can also be important to work with a financial advisor who is based in the area where you live or plan to retire. Your location matters to your financial plan. Taxes and laws, for example, vary by state and locality. Real estate costs and taxes vary by geography. Financial and retirement planning in Baton Rouge is different than in other parts of the country, and a local financial advisor may be in a much better position to understand your specific concerns, issues and situation.
6. No Guarantees
Markets – and thus portfolio returns – fluctuate. Real estate prices go up and down. Tax policy and laws regarding inheritance can change in Washington D.C. or individual statehouses and can have significant effects on your money. People can get married, have children, go through a divorce and even pass away unexpectedly, with sometimes unanticipated financial results.
Because of this, any financial advisor who gives you guarantees should, frankly, be avoided. As robust as stock market returns in a given year can be, no one can predict the future. The same with the value of your real estate, the tax implications of specific decisions and more.
A good financial advisor should discuss likely outcomes and pros and cons candidly. And a good financial plan should include prudent risk management so you are positioned to receive maximum advantage from good times and at the same time be protected from bad times and adverse events. That includes good and bad times in the stock, bond and real estate markets, your personal life and more.
If you’re looking to work with a financial advisor for the first time or planning to make a switch, schedule a free consultation with Align Wealth Partners to see if we can help.