BUSINESS MATTERS
paid based on the specific financial products they sell to their clients. These models create an inherent conflict of interest. Advisors may struggle to put their client's best interests above their own. They also may recommend riskier financial investments with lower returns because they'll earn more money.
In contrast, clients pay Fee-Only advisors directly based on an hourly rate, a percentage of assets, a flat fee or a retainer for advice, plan execution and ongoing asset management. Because financial advisors don't receive compensation from third parties, there's no incentive to sell you expensive and risky financial products. This model allows them to concentrate on financial recommendations suitable to your situation.
"When choosing a financial advisor, always ask them how they are compensated for their services," says Dattomo. "Asking this question will help you better understand the nature of the relationship and whether the advisor will be putting your best interests first. If they give you anything but a straight answer, continue your search."
2. A fiduciary
A fiduciary is a professional that manages assets or wealth while putting the client's best interest first. Fiduciaries are required to disclose any conflicts or potential conflicts to their clients before and during the advisory engagement, adopt a code of ethics and explain their fee structure.
Not all financial professionals are fiduciaries. Non-fiduciary advisors can recommend products with higher fees that generate bonuses, commissions and
prizes. That's why it's of the utmost importance to ensure your financial advisor has signed a fiduciary oath.
"As consumers of financial services, we all owe it to ourselves to remain diligent - to understand our options and the standards our financial professionals are held to," says Dattomo. "Selecting a financial planner who has taken a fiduciary oath means they will always put your best interests first."
3. Experienced and proactive
Having an experienced and proactive advisor is key to securing your financial future. When searching for a financial advisor, check out their educational history, including credentials and designations such as a Certified Financial Planner® (CFP®) certification.
CFP® professionals meet rigorous education, training and ethical standards that allow them to work in the best interests of their clients today, tomorrow and beyond. You can also check if they're members of a reputable financial association such as NAPFA. "When you entrust your financial well-being with a financial advisor, you want to make sure that they are looking out for your overall financial well-being," says Dattomo. "That is why NAPFA-Registered Financial Advisors must meet stiff credentialing and rigorous continuing education requirements along with their Fee-Only and fiduciary oath."
4. A holistic approach
When working with an advisor, you'll want to choose someone who takes a broad-based approach to managing and planning your finances. Some financial planners focus on only one or two elements of your finances, such as selling specific products and investments, and overlook other critical areas of your long-term financial outlook.