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Hiring a new financial advisor isn’t a decision that should be taken lightly. Indeed, many times that person will be helping you manage your entire nest egg. And while people often know to do things like double check an advisor’s credentials (do some digging on CFP.net and BrokerCheck.com), they often forget to consider some other things. Here a some of them. (This tool can help you get matched with a planner who meets your needs.)
Their area of expertise
Some financial advisors specialize in working with certain groups, like people in certain career fields; at different stages of life (like young adults or those nearing retirement); women or same-sex couples. And while this isn’t a must-have, “it can be very helpful to find an advisor who has expertise that specifically benefits you,” says Sara Rathner, personal finance expert at NerdWallet. In this case, asking a potential advisor if they have an area of concentration can assist in determining whether or not they’re a good fit for you.
Their social media accounts
“Look at their social media. Do they have the same values or interests you have? Does that matter to you? What are the deal breakers? It’s important to get to know your prospective advisor on more than one level. After all, like most relationships, financial planning partnerships are built on trust, commonalities and complements,” says Grace Yung, a financial planner at Midtown Financial Group.
Jen Grant, certified financial planner at Perryman Financial Advisory, recommends checking LinkedIn as well. “It will give you a flavor of their work history and also their average tenure. If they’ve changed firms every year, you want to know this ahead of time,” says Grant.
How they get paid (beyond the obvious)
“Always ask how a financial advisor gets paid,” says Rather. And it’s more than simply asking their hourly rate, monthly retainer or the percentage of assets under management they charge. You must also know “do they earn commissions if you opt for a product they recommend,” she adds. Ideally, you want to work with a licensed, fee-only fiduciary — “that means they don’t earn commissions by selling products,” explains Rathner. (This tool can help you get matched with a planner who meets your needs.)
How they handled big market events in the past
“Ask them about the dot com bust of 2000 or the great recession of 2008. With the pandemic still fresh on everyone’s mind, ask them what they were telling their clients in February and March 2020 and ask how many of their clients listened to them,” says Grant. This way, you’ll know how they’re likely to handle big market events in the future and can determine whether or not you agree with their stance.
Whether they’re facing serious lawsuits
Grant suggests you check sec.gov/litigations/sec-action-look-up and nasaa.org/contact-your-regulator for a complete history of the financial advisor you’re considering hiring. Not all allegations have meat behind them, of course, but they can also be “a big red flag,” says Grant. Should you find something concerning, you can inquire about the incident to get more clarity and then decide whether or not you want to proceed with their professional services.