How to choose a financial advisor

A financial advisor is a person who gives advice or guidance on how to manage one’s finances. They give this advice or guidance on the basis of the client’s financial situation, and charge a fee for the same.

Most countries require financial advisors to hold a license or certificate in the field of financial advising before they start practicing.

The most common certification for a financial advisor is that of a ‘Certified Financial Planner’ or CFP.

Rise in digital technology has led to the launch of robo-advisors, which are basically computer algorithms that build a portfolio on the basis of your risk tolerance and financial goals. This is usually done by answering a questionnaire, which helps the robo-advisors build a portfolio of financial products.

Keep the following points in mind when selecting a financial advisor:

Cost: How much are you read to pay to hire a financial advisor? The rate of a human advisor is different from a robo-advisor.  Human advisors either charge a fixed fee or their compensation depends on the amount of money they manage. Several advisors charge a fixed percentage of the value of the portfolio that they manage. A smaller-value portfolio may attract a larger percentage, while a larger-value percentage might be charged at a lower rate.

Background and qualifications:The financial advisor or the financial advising company that you select should have a sound background and the minimum required qualifications to practice financial advisory services.  The company or the person should not be breaking any laws or rules or stealing money in the name of financial planning. They should have the required qualifications and standards in place to function as a financial advisor. There should not have been any disciplinary action or criminal charges against them.

Experience of the financial advisor: The number of years a financial advisor has been in practice tells a great deal about his/her ability to deal with real money. It also means that the advisor has survived through the years and learnt about the dynamics of the market.

Check the past financial reports of the advisor: Whenever we hire a person for a service, we always check their past work. For example: if we want a get a sofa made, we will first check the furniture that the carpenter has built in the past along with the quality of their work. Then only will we decide whether to utilise their services. Similarly, before finalising on an advisor, check their past records to ensure that they know their work and are also good at it. Don’t blindly hire anybody to manage your finances.

Terms and conditions:You should always go through the fine print of an agreement before signing. The same is applicable when signing a contract with a financial advisor. The terms and conditions mentioned at the end of the agreement can include clauses with which you might not be comfortable, like investing your money in high risk assets in order to get higher returns. So it is always better and safer to read everything in the contract before signing it.

Trust: Trust plays a huge role in selecting a financial advisor. While working for you, the advisor will get access to your personal details. By looking at your finances they will get to know things which only you know. Thus, it becomes pertinent that you trust your financial advisor.

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