Financial Advisor: How to Choose One

Contrary to the misconceptions of some, the selection of a financial advisor does not require a Wall Street background or several years spent studying stocks and mutual funds. What it does require, however, is that you, as a prospective client, be willing to familiarize yourself with the functions and responsibilities of financial advisors, what they can do for you, and how they are compensated by those who hire them. Before beginning your search for the financial advisor that is right for you, it's necessary to determine what your financial goals are. Are you interested in saving and investing for your retirement years? Are you trying to save for a major purchase, like a home? Are you engaged, newly married, recently widowed or divorced? Is your child preparing to enter college in the next few years? Take a few minutes to write down your goals and prioritize them if you have more than three. Once you have created a list of your financial goals, decide whether your needs can best be met by an independent fee-based advisor, a financial advisor employed by a large firm, or a certified financial manager.

Fees or Commission?

Higher-net worth clients have traditionally relied on financial planners for whom they pay an annual retainer's fee for the privilege of unlimited access to financial advice, products, and services throughout the year. Today, many other options are available to the average consumer. The most common payment structures are fee-only financial planning and commission-based financial planning. Larger firms often use the commission-based model in which the advisor handling your portfolio earns income based on financial products that they sell to you.