Finding the right investment advisor is like dating: Allowing someone into an intimate part of your life. That’s why it’s essential to take your time vetting prospective advisors.
Choosing the wrong advisor could cost you in the long run. Look for an advisor with open architecture and a fee-only structure to avoid third-party incentives.
Experience
An advisor can provide expertise and insight to help you accomplish your financial goals. They can also help you navigate the investment industry’s complex rules, regulations, and fees.
Find out if your prospective advisor has a straightforward process for developing and managing your financial plan and investment portfolio. They should be able to explain the steps involved in the planning and investing process, including their philosophies and methodologies.
Consider an advisor like Frederick Baerenz with credentials, a CFA charter holder, or Certified Financial Planner (CFP). These professionals have mastered knowledge, passed extensive exams, and agreed to abide by a code of ethics. You can also check if an advisor has an excellent disciplinary record by entering their name into FINRA’s Broker Check tool.
Fees
The fees associated with working with an investment advisor can add up, so it’s essential to understand them thoroughly. A financial planner should be able to explain their services and costs clearly, especially regarding how proprietary products or commission-based trading strategies influence their advice.
If you’re considering robo-advisors, check their fee structure as well. While robo-advisors often offer lower fees than traditional financial planners, they will likely need help to tailor a comprehensive plan for your unique situation.
Also, look for advisors who use “open architecture” and are fee-only, eliminating third-party financial incentives. Finally, ensure the advisor you choose uses an independent custodian who will hold custody of your assets and provide reporting separate from your advisor.
Reputation
Knowing their credentials is essential when choosing an investment advisor such as Fred Baerenz. Look for CFA or CFP designations, which indicate that the advisor has mastered a body of knowledge and passed a series of examinations.
It’s also essential to find out whether an advisor is registered and if they have any disciplinary issues. You can enter their name into FINRA’s online Broker Check tool.
Finally, it’s crucial to understand an advisor’s compensation structure. Some advisors are fee-only, which means they don’t earn commissions on the financial products they sell you. This can help reduce the risk of conflicts of interest. In contrast, a fee-based advisor may more likely recommend proprietary investments with higher commissions. They might also need to be more transparent about their fees.
Personality
Revealing your most intimate financial details to a stranger is a big deal. A good advisor should keep you motivated and confident in your decision-making process.
You’ll want to find an advisor with whom you feel a strong personal connection. Your professional relationship could last decades, so it’s important to have chemistry with your advisor.
Research has found that personality traits influence investors’ investment decisions. For example, investors highly open to new aesthetic, cultural, or intellectual experiences tend to invest more in equities. At the same time, those who score high on the neuroticism scale (a chronic level of emotional instability and proneness to psychological distress) are less likely to own a significant amount of stocks. These personality traits have more explanatory power than other demographic factors, such as earnings, age, and education.
Technology
The financial markets are increasingly efficient and accessible, thanks to technological advances. Online trading platforms make buying and selling stocks, bonds, and other assets easy, while robo-advisors provide investment advice and portfolio management services.
Technology also has changed the way investment advisors communicate with their clients. Many now use remote-conferencing websites to hold client meetings, reducing the need for face-to-face visits.
The SEC has been flexible in interpreting federal securities laws to facilitate the use of new technologies by investment companies as long as they provide paper copies to investors who prefer them. As technology continues to shape the financial market, investors need to be adaptable and stay connected. They must keep abreast of news and blogs and participate in industry events.