So you’re looking for an advisor? Great! That must mean you’re ready to start saving like you mean it!
Except… how do you actually go about choosing one? Do you just grab the first result on Google? Social media-stalk financial advisors near you?
It can be tough (and even intimidating) to choose a financial advisor, especially if you don’t know what you’re looking for. That’s why we’re walking you through the basics of financial advisors, so you can connect with advisors with confidence.
Let’s start off with a simple Q for you: what are all your lifelong financial ambitions and what timeframe do you have to reach those goals? (Okay, maybe not so simple…)
Why Do You Want an Advisor?
Okay, so maybe it’s not a simple question – but it may be the most important. A great jumping off point in your search is to ask yourself why you want an advisor in the first place. What are your goals? Do you want to start saving for retirement? Put together a down payment for your first home?
All these goals can benefit from the advice of a financial advisor.
The key here is to think about whether your main goal is short term or long term, because the investing strategies you’ll want to employ vary depending on how much time you have to put your money in the market. In that same vein, different advisors will employ different strategies for investing your money.
Grab a pen and paper and start jotting down your goals, underlining the big projects you think are most important. Having these goals on hand will help you stay on track and keep the big picture in mind during your search for a financial advisor.
What’s Important to You in an Advisor?
Think about the kind of interactions you’d like to have with your financial advisor – do you want their number on speed dial, or would you prefer an annual check-in? Do you like old-school, in-person interactions or a simple text? Whatever your communication style, chances are there’s an advisor who can deliver it.
Aside from communication, you might also want to consider geographical area. With the dawn of Zoom, most financial advisors will work with anyone anywhere, but working with someone local may be important to you. Maybe you want someone who fully understands your state’s tax codes, or maybe you just want to be able to sit down in the same room as them. Or maybe convenience is top on your list, so you’re okay with virtual meetings. If so, then you probably don’t care about geography as much.
If you have values you’re passionate about that would factor into your financial planning, you can also think about whether your advisor needs to have those same values. For example, there are advisors that specialize in faith-based financial planning. Or, if the environment is near and dear to your heart, look for an advisor with experience in eco-friendly or socially conscious investments. Whatever your passions, there is likely an advisor out there who feels the same and can help guide your finances to support the lifestyle you want.
What Else Should You Know About Advisors?
Just like Taylor Swift’s sweet musical sounds span several music genres, the term “financial advisor” can actually mean a few different things. Financial advisors vary based on their fees, legal obligations and experience.
Financial advisors have a wide variety of fee structures, but there are three main types: fee-only, commission-based and fee-based.
Fee-only advisors charge a flat price based on the hours worked, services rendered or even a certain time frame (i.e., annually). Think of it like a subscription where you pay an advisor a few hundred dollars a month for their services, and that’s how they make their money.
In contrast, commission-based advisors are paid according to investment and insurance products they sell.
Lastly, a fee-based advisor is paid through a combination of these two types, charging a flat fee for some services while earning a commission through sales on others.
Why should you care how your advisor is paid? Ultimately, it may not make a difference to you, but some people prefer to avoid working with advisors who are largely commission-based in order to avoid the appearance of being “sold” anything.
Fiduciary vs. non-fiduciary
You may have heard advisors throw around the word “fiduciary” a lot without really knowing what it means. This legal term actually packs a lot of meaning. A fiduciary advisor is required by law to always put their clients’ needs and interest before their own.
Imagine an advisor has two investments they could recommend to you:
- Investment A could earn you 2.5% but does not have any commission for the advisor;
- Investment B could earn you 2.49% and it comes with a little commission for the advisor.
A fiduciary advisor is required to recommend the 2.5% option because they have to operate from the perspective of your best interest, without including theirs. If the Securities and Exchanges Commission (SEC) catches them not working in their clients’ best interest, they could be in big trouble.
In contrast, a non-fiduciary advisor is not held legally responsible for acting in your best interest at all times. In fact, they may not even have to disclose any potential or actual conflicts of interest within their work. That’s why the term “fiduciary” is definitely one you should have on your radar during your search.
Still confused? Here’s John Oliver explaining it as only he can.
There are a lot of different titles for advisors – don’t get confused
Financial advisor, wealth manager, investment advisor, paraplanner, financial planner, financial coach… What is with all these different job titles?
No two advisors are alike, but just because this one calls himself a “financial advisor” and that one calls herself a “wealth manager” doesn’t necessarily mean they have different jobs.
There’s no “official” job title for advisors, so they’ve created endless variations of it, leading to endless confusion for people who just want help with their money.
Still, there are some other terms that might be good to know:
- RIA – Registered Investment Advisor: These are independent advisory firms, meaning they’re not part of a wirehouse like Wells Fargo Advisors. They’re the fastest growing segment of advisors today, due in large part to a new crop of entrepreneurial advisors who want to be able to set their own schedule, choose their own tech, and have total control over their jobs.
- CFP® – Certified Financial Planner: This is a professional designation advisors earn by attending college-level courses over a number of years and passing a final exam. It’s like the Ph.D. of the financial world. Advisors are not required to have it, but it’s becoming more and more prominent in use as a way to separate oneself from someone who just decided to hang an “Advisor” shingle on their front door.
- Broker: As the name implies, a broker is an individual or firm that brokerages deals. They basically act as a middleman, buying and selling investments on behalf of investors. They’re not really there to give advice, more to just make trades on your behalf.
How Do You Know an Advisor is Right For You?
Narrow down your search according to your values. While you might think that would take a lot of time and research, Lasso actually makes the process pretty simple.
All you have to do is download the (totally free) app, build a plan based on your financial goals and BAM! You’re all set to anonymously browse hundreds of advisors. Once you find one you like, you can send them your plans and see what they’d do to help improve upon them.
Feeling good vibes? Take the convo out of Lasso and connect IRL. Don’t like their ideas? There’s no shame in the ghosting game on Lasso, so you do you.
Finding an advisor can be tough, but knowing your goals and values offers a great jumping off point to making the big decision.
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Lasso is the game-changing app that connects investors directly with advisors, making your search as easy as possible. Take the next step in your financial journey by downloading the Lasso app today.