Things to Do Before Seeking Financial Advice

The decisions you make today significantly impact your financial future. Decisions regarding your family's financial planning, investments you make, the plan you put together for your retirement, and how you manage those investments. These decisions should not be taken lightly and seeking professional advice from a financial advisor could be invaluable.

Financial advisors bring expertise and objective insights that can help you make informed decisions about your money. Whether it's creating a comprehensive financial plan, optimizing your investment strategy, or ensuring your retirement savings are on track, a financial advisor can provide tailored advice that aligns with your goals and risk tolerance.

By seeking professional financial advice, you can benefit from a structured approach to managing your finances. Financial advisors can help identify growth opportunities, mitigate risks, and provide you peace of mind knowing that your financial future is in capable hands. This guidance can lead to better financial decisions which ultimately help you achieve your financial aspirations more efficiently and effectively.

However, with the multitude of financial advisors and financial planning services available, finding a suitable financial advisor can take time and effort. In this article, we will explore certain steps you should take before seeking financial advice, such as reviewing the different kinds of services offered, assessing your financial situation, understanding the required documents, finding the type of financial advisor you need, evaluating the cost of hiring a financial advisor, and more.

Below are the steps you need to take before you seek financial advice:

1. Evaluate whether you need a financial advisor

Whether you need a financial advisor depends on your circumstances and financial goals. Here are some scenarios where professional financial advice can be particularly beneficial:

1. Navigating significant life changes: Major life events such as getting married, having children, buying a home, or receiving an inheritance often require substantial financial decisions. An advisor can help you navigate these changes, ensuring your financial plan adapts to your new circumstances.
2. Managing complex financial situations: If you have a complicated financial situation, such as owning a business, managing substantial investments, or dealing with multiple income sources, a financial advisor can provide expert advice to manage these complexities efficiently.
3. Planning for pension: Planning for retirement can be complex. If you're unsure of how to manage your pension, whether it be choosing between different pension plans or understanding the tax implications, a financial advisor can provide clarity and guidance. They can help you decide when and how to take your pension to maximize its value.

2. Understand the financial services a professional advisor provides

Financial advisors offer a range of services designed to help you manage your money more effectively and achieve your financial goals. Here’s what they can do for you:

1. Comprehensive financial planning - Financial advisors work with you to set realistic financial goals and create actionable plans. This includes budgeting, managing debt, saving for education, and planning major purchases. Advisors provide ongoing support and adjustments to your plan as your financial situation and goals evolve.
2. Investment management - Advisors can develop and manage a diversified investment portfolio tailored to your risk tolerance and financial objectives. They monitor market trends, rebalance portfolios, and make adjustments as needed to maximize returns and minimize risks.
3. Retirement planning - Planning for retirement involves more than just saving money. Advisors help you understand how much you need to save, the best retirement accounts to use, and strategies to ensure your money lasts throughout your retirement. They can also assist in planning the timing of your retirement and optimizing Social Security benefits.
4. Tax planning - Tax planning is crucial for preserving wealth. Financial advisors provide strategies to minimize your tax liability, such as tax-efficient investing, making the most of tax-advantaged accounts, and planning for tax implications of major financial decisions.
5. Estate planning - Advisors help you plan to transfer your wealth to the next generation. This includes creating wills, setting up trusts, and planning for estate taxes to ensure your assets are distributed according to your wishes and in a tax-efficient manner.

[Recommended Read: How Can A Financial Advisor Help You Manage Your Finances?]

3. Evaluate the different ways an advisor or firm gets paid

Understanding an advisor’s fee model is essential for evaluating the cost of getting the advice and financial services you may need. Each fee model has its benefits and drawbacks, and the right choice depends on your individual financial needs, preferences, and the level of service you require.

A. Hourly rate

Advisors charge a fixed hourly rate for their services. This is typically used for one-time consultations or specific advice sessions.

1. Benefits: Hourly rates can be cost-effective for clients who require occasional advice. It provides transparency as you pay only for the time you use. There is no ongoing commitment required from your end.
2. Drawbacks: Costs can add up if frequent advice is needed and complex or lengthy consultations are required. It may not provide comprehensive financial planning. Additionally, it may not cover ongoing support and monitoring of your financial plan.

B. Flat fees

Advisors charge a fixed fee for a comprehensive financial plan or specific services such as retirement planning or estate planning.

1. Benefits: Flat fees provide clear, upfront costs without any hidden charges. This fee model is suitable for clients who need a comprehensive financial plan but don’t require continuous management.
2. Drawbacks: The initial cost can be high, and it might not include ongoing adjustments or regular reviews.

C. Fee-only

Advisors charge a percentage of the assets they manage for you, typically ranging from 0.5% to 2% per year.

1. Benefits: This model aligns the advisor’s incentives with the client’s success, as the advisor benefits from growing the client’s assets. It often includes comprehensive services and ongoing management.
2. Drawbacks: Costs can be high for those with substantial assets. Additionally, this model might not be cost-effective for clients with smaller portfolios who need more personalized attention.

D. Fee-based

These advisors earn a combination of fees and commissions. They charge a fee for assets managed and also earn commissions from product sales.

1. Benefits:
• Typically offer a range of services
• Mixed compensation model may be more affordable
• Flexibility in payment options
• Can provide comprehensive financial planning and product recommendations
2. Drawbacks:
• The existence of a commission can lead to conflicts of interest
• Cost structure may be complex

E. Commission-based

Under this compensation model, advisors earn commissions from the financial products they sell, such as mutual funds, insurance policies, or annuities.

1. Benefits:
• Lower upfront costs
• Potentially free initial consultations
2. Drawbacks:
• Potential conflicts of interest
• Advisors may prioritize high-commission products over client needs
• Lack of transparency in pricing
• You may end up paying more over time

Determine the best fee model for your situation

1. Consider your financial needs: If you need a comprehensive financial plan and ongoing support, a percentage of assets managed might be suitable. For occasional advice or specific projects, hourly rates or flat fees could be more cost-effective.
2. Budget: Assess your ability to pay upfront costs versus ongoing fees. Ensure the advisor’s fees are within your budget and offer value for the services provided.
3. Service level: Evaluate whether you need continuous management or just periodic check-ins. Choose a fee structure that matches the level of service you require.

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4. Find qualified financial advisors that fit your needs

a. Seek recommendations

Ask friends, family, colleagues, and other trusted individuals for recommendations. Referrals can provide insights into the advisor's reliability and performance. You may also use professional networks or ask for referrals from other financial professionals you work with, such as accountants or attorneys. We all have varying financial needs and there isn’t a one-size-fits-all approach to financial planning. Thus, it may be a good idea to find an advisor that fulfills your unique needs.

Online advisor match tools can also be immensely helpful in this regard. By analyzing your details and preferences, you can get matched with an ideal and vetted financial advisor. This significantly eases the process of finding and assessing advisors from a huge list of options. One such tool is offered by WiserAdvisor. It is a free and reliable advisor match tool where you get matched with vetted financial advisors based on your requirements.

Irrespective of the resource you choose, it is important to seek reviews/referrals in order to make informed choices about your money.

5. Check the credentials and background of potential advisors

a. Checking credentials

Verify the advisor's credentials and certifications. Look for designations like Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA), which indicate a high level of expertise and adherence to ethical standards. You may also use resources like the National Association of Personal Financial Advisors (NAPFA) and the Certified Financial Planner Board to check the advisor's qualifications and any disciplinary history.

FINRA also offers a free tool called BrokerCheck. This tool allows you to research the background and experience of financial brokers, advisers, and firms. It helps you make informed choices by providing details about a broker’s employment history, regulatory actions, licensing information, and any arbitrations or complaints.

[Recommended Read: How To Use BrokerCheck To Evaluate A Financial Advisor’s Credentials]

b. Verify experience

Evaluate the advisor's experience, particularly in dealing with clients who have similar financial situations and goals as yours. An advisor with relevant experience can provide more detailed and tailored advice.

c. Evaluate if they are a fiduciary or not

When selecting a financial advisor, ensure they have a fiduciary duty to act in your best interest. Fiduciaries are legally obligated to put their client's interests ahead of their own and cannot sell their clients an investment product that runs contrary to their needs, objectives, and risk tolerance. In addition, they must disclose any conflict of interest when making investment recommendations.

6. Organize your financial documents before you seek advice

When preparing for your first meeting with a financial advisor, having the right information and documents is crucial for receiving effective and tailored advice. Here are the key items you should gather:

• Financial statements - Bank statements, both checking and savings accounts. As well as statements for any investment accounts, including brokerage accounts, and retirement accounts, such as 401ks, IRAs, and any other investments.
• Tax returns - Copies of your tax returns for the past few years. These provide insight into your income, deductions, and overall financial situation.
• Details of income and expenses - A detailed list of your monthly expenses, including fixed expenses (rent/mortgage, utilities, insurance) and variable expenses (groceries, entertainment). As well as recent pay stubs or other income statements.
• Debt information - Statements for any debts you have, including credit cards, student loans, car loans, and mortgages. Include details such as outstanding balances, interest rates, and repayment terms.
• Insurance policies - Copies of all insurance policies, including life, health, auto, home, and any other relevant policies.
• Estate planning documents - Wills, trusts, and any other estate planning documents.
• Business financials - If you own a business, bring financial statements, tax returns, and any other relevant documents related to the business.
• Other important documents - Documents related to major financial obligations or commitments, such as child support, alimony, or large upcoming expenses.

Apart from the documents listed above, be transparent about your financial situation. Advisors need a complete, accurate picture of your finances to provide the most effective advice. Holding back information can lead to suboptimal recommendations that do not address your needs completely or might even be counterproductive. Full disclosure ensures the advisor can help you create a realistic and actionable financial plan tailored to your goals and circumstances.

7. Set clear financial expectations and goals

Setting clear expectations and goals can lead to a productive relationship with your financial advisor.

a. Define your financial goals

• Be specific: Clearly articulate what you want to achieve, whether it is saving for retirement, buying a home, funding education, or other financial objectives.
• Prioritize: Rank your goals in order of importance. This helps the advisor understand what to focus on first and allocate resources accordingly.
• Define time frame: Specify the timeline for each goal. Short-term, mid-term, and long-term goals require different strategies and planning.

b. Communicate your expectations

• Be transparent: Share your complete financial situation, including assets, liabilities, income, and expenses. The more information your advisor has, the better they can tailor their advice.
• Discuss preferences: Talk about your risk tolerance, preferred investment styles, and any specific preferences or restrictions you have. This helps in crafting a plan that suits your comfort level and values.
• Set boundaries: Clarify the level of involvement you want in managing your finances. Some clients prefer a hands-on approach, while others are comfortable with the advisor handling most decisions.

c. Communicate regularly

• Conduct regular reviews: Life changes and market conditions can impact your strategy, making periodic reviews essential. Schedule regular check-ins with your advisor to review your financial plan’s progress and make necessary adjustments.
• Update information: Keep your advisor informed about significant changes in your life, such as a new job, marriage, or major purchase. These events can affect your financial plan and require adjustments.
• Set up a feedback loop: Provide feedback on the advice and services you receive. Open communication ensures your needs are met and any concerns are addressed promptly.

In Conclusion

Your financial decisions can significantly impact your financial future. Before seeking financial advice, assess your financial situation, and determine the kind of financial advisor you need, and what documents you require. Inquire about the different kinds of financial services offered and what the advisor charges for those services. It may take some effort to find a suitable financial advisor, but it will be worth it if the advisor gives you pertinent advice and helps you get to a better financial state.

Use the free advisor match tool to get matched with vetted financial advisors who can help manage your finances. Answer some simple questions about your financial needs and get matched with 2 to 3 qualified financial advisors. Most advisors offer a free initial consultation and you have no obligation to hire.