How to Choose a Financial Advisor That's Right for You
Partnering with a financial advisor can provide you with a clear roadmap to your financial future. But it's essential to choose the right one. The most important factor is finding a fiduciary—someone legally obligated to act in your best interest.
Understanding Compensation
How an advisor gets paid reveals a lot about their potential conflicts of interest:
- Fee-Only: They are paid a flat fee, an hourly rate, or a percentage of the assets they manage for you. They do not earn commissions for selling products. This is often considered the most transparent model.
- Commission-Based: They earn money by selling you financial products, like mutual funds or insurance policies.
- Fee-Based: A hybrid model that combines fees and commissions.
Questions to Ask
When interviewing potential advisors, ask them directly: "Are you a fiduciary?" Also, inquire about their credentials (like CFP® or CFA®), their investment philosophy, and the types of clients they typically work with. A good advisor will take the time to understand your complete financial picture and goals.
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