Financial advisors: learn how to choose the best of 2022

Keeping your financial health in check is the main expertise of financial advisors. However, we noticed a funny thing when we started talking to our fellow financially worried Americans: many people don’t really know what this type of advisor does. 

There are many type of advisors, some are automated and help you keep your account on track and avoid overspending. They can even suggest investments based on your spending style and income, as well as AI that predicts trends in the economy. These automated options are the most cost-efficient choices and include some great robo-advisors. 

But we don’t want you to jump straight away to get your own automatic advisor. After all, each household has its own necessities and income types. That means that, according to the situation, you could be in need of more personalized financial advisors and their human services. 

We prepared a guide with you in mind! Keep reading to understand exactly what financial advisors are, how do they work and what you should take into consideration before hiring a service. 

Before we start, what are financial advisors?

Most people live paycheck to paycheck without much planning in between. That means that most of their income goes towards living expenses and we know that sometimes this isn’t an option. But other times it happens because of a lack of planning and support from specialists. 

The financial advisors we’ll talk about across this article have one single objective: help their clients make more with their money. Instead of using everything for daily spendings, and even unnecessary pleasures, you’ll learn how to save and invest in a way that makes your family’s life better. 

But how do you know if it’s time to look for a financial advisor? Everything depends on how your financial health is right now. But a general rule of thumb is: you need to have stable and steady income and the ability to save up to 20% of all that you year annually. As long as you can save a little bit, you’ll be sure that you earn enough to invest in passive income and keep paying your financial advisor’s fees. 

How to choose the best financial advisors

The best financial advisors can be a real asset for your financial life and provide you with the guidance to guarantee a passive income. Certainly, you can dabble in investments, cryptocurrencies and even ETFs on your own. But that’s no guarantee of success! The wrong turn could mean getting into debt or losing a lot of money at once. 

That’s why a financial advisor is such a good idea. Professionals such as these (or apps, depending on your choice), should be able to help you identify your risk profile and the best choices. They’ll also give you tips on ways to manage your lifestyle to make sure there’s enough left to invest. But everything depends on choosing the right person for the job. 

In a world where scams and fraud don’t stop growing, the financial advisor market became quite tricky to navigate. That’s why you should keep reading to understand how to make the best choice in a safe way. 

1. Understand your financial life and where you need help

Financial advisors aren’t all the same and neither are Americans’ financial lives. Everyone needs help one way or another, but these specific needs can be quite different. That’s why the first step to hire someone who will really help you is understanding your current situation. 

Most of the professionals in the area offer a lot more than just financial advice. They could help you get out of debt or invest better in your career, buy the perfect home, among other things. But there’s only one person who can decide what they ask of the pros: you. 

So looking through your books carefully is the perfect first step in this journey. Without understanding where the actual financial problem is, you’ll only waste time and money on an advisor. Let’s say you’re a working individual who wants to retire with a comfortable pension, it’s this person who will help you. 

2. Check out different types of financial advisors 

Did you know that there are a few types of financial advisors you can talk to? Well, talking may be too strong a word, since some of them are actually artificial intelligence (AI) or algorithms that calculate suggestions for you. Either way, you shouldn’t lock onto a single type right away, getting to know each one of them will help you to save money and get the best choice. 

There are plenty of choices to choose from, such as: 

• Fee-only financial advisors: to put it simply, they get money from fees you pay. They can be a percentage of the assets the advisor manages, hourly rate or flat rate; 
• Commission based financial advisors: they earn money by getting commissions from third parties, which means they might advertise themselves as free or just collect small fees. Just be careful, since these advisors will try to sell you products and services from other companies to complete their income; 
• Registered investment advisors (RIAs): these are companies that are bound by judiciary duties. Each RIA can have dozens of investment advisor representatives (IARs). They have a wide range of expertises and you can choose many aspects of your financial life to manage; 
• Robo-advisors: these are low-cost automated services that give you investment suggestions based on the data you inform. They can be a great starting point for anyone who wants to start small.  

3. Check credentials for all financial advisors

As the saying goes, all that glitters is not gold. Many professionals who sell themselves as financial advisors are actually scammers. That’s why we recommend that you check each of their credentials. There are some well recognized certifications you can ask about, including: 

• Chartered Financial Analyst (CFA);
• Certified Financial Planner (CFP). 

Those who hold such certifications also have a wider range of knowledge to help you through your financial life. Which means that, not only are they more trustworthy, but they also know more about what you go through financially to be able to help. 

Professionals who have taken certain certificates also abide by a code of honor the same way a doctor or lawyer would. They can only act in the benefit of their clients and partners, vowing to do no harm or fool you in any way. 

Meanwhile, many financial advisors we meet online could be tricksters. If possible, try to look for professionals who work for a RIAs, since they also use codes of ethics to avoid problems with their professionals and clients. When in doubt, refer to the CFA Institute site or the CFP board site to make sure you’re working with people who have official certificates. 

4. Understand how payment works for your choice

We mentioned the financial advisors types and their payment choices briefly above, but you really must pay attention to them. Many salespeople sell themselves as advisors to get you to buy insurance or invest in a new type of cryptocurrency, for example. However, their free financial and investment advice isn’t all that professional. They might know their own product, but don’t know so much about how to make your life better with it. 

For starters, always look a given horse in the mouth. If the advice comes for free, you’ll likely get offered some sort of product as a collateral. The advisor must also make money, after all, and it usually happens with a comision. 

Even independent advisors can work with a mix of commissions and fees. So you should always watch out for unexpected products coming your way when getting their advice. Whenever possible ask your financial advisors if they: 

• Earn commission on stock trades? 
• Get a percentage of insurance sales?
• Are affiliated with any financial company?

While answering yes to any of these questions doesn’t necessarily mean a red flag, you should take everything with a grain of salt. 

5. Look for those fee-only advisors

There is a conflict of interests when it comes to commission based financial advisors. That’s why we have the perfect choice for you: fee-only advisors. Since all the money they make comes from either a fixed fee their clients pay or a percentage of the assets they manage, there isn’t as much need to worry. 

Many people go to free financial advisors who end up selling them expensive products because they don’t want to pay fees. What they aren’t aware of is that most of these products actually have a heavy fee on them that you’re paying to the salesperson. Since it’s hidden you’ll get the impression of earning free advice and buying a separate product. 

The best choice is to actually pay for your advice and avoid any unnecessary purchases. When they work for a fee, the financial advisors will be pushed by the need to make you get better financial results. Otherwise, you won’t feel like recommending the professional to family and friends or even hire them again in the future.