Continuing Education for Financial Advisors Reddit
Who you trust with your money can help make you or ruin you. A good case in point is former world heavyweight champion boxer Mike Tyson. Despite earning in excess of $300 million during his career, he lost it all and filed for bankruptcy in 2003. Working only with the most capable financial advisors is critical to preserving and enhancing your wealth.
A strong personal finance plan includes clear planning for the type of advisor you need. Below, we show you the key considerations you need to know in order to select a financial advisor who enhances your personal wealth.
1. The Difference Between Fiduciary Vs. Financial Advisor
There's a keyword you need to introduce to your financial lexicon. That word is fiduciary.
Knowing the difference between a fiduciary and a non-fiduciary financial advisor could end up impacting your entire financial performance. This is because there are key differences in how these types of advisors work for you.
A financial fiduciary is defined as an investment advisor who is regulated under the Investment Advisors Act of 1940. Under this fiduciary standard, an advisor is strictly required to put the interests of the client above the advisor's own interests. Among other things, the advisor cannot buy securities for their own account before buying them for the client. If there are conflicts of interest, the fiduciary must reveal them to the client.
A non-fiduciary advisor, on the other hand, may trade securities for their own account regardless of what advice they are giving the end customer. Their responsibilities for the financial well-being of the customer, legally, are more restricted.
If you are an unskilled investor, you will likely fare better with a fiduciary. On the other hand, a more expert investor can be expected to manage to work with non-fiduciaries. This is because the expert investor has developed their financial expertise.
When it comes to financial performance, track record is everything. The best investment managers like Warren Buffet and Ray Dalio have posted great returns year after year.
An important step therefore is to carefully evaluate a financial advisor's history of giving financial advice. You want to see a winning record. Ideally, the advisor's clients have all become significantly better off after they began working with the advisor than before.
Wall Street Journal columnist Jason Zweig advises to request to see an investment advisor's track record in writing.
Pay careful attention to this advice because if you cut corners and take on an advisor with a bad record, you could end up suffering financially.
3. Determine Your Acceptable Level of Risk
Another key part of working with a financial advisor is knowing your own acceptable level of risk. This helps you set limits and expectations early.
Advisors might recommend something for you down the line that really does not work with your personality. For example, if you have an ultra-conservative approach to risk, you will prefer safer investments. Investing in a hot new technology stock or something as speculative as cryptocurrencies would not suit your temperament.
4. Why You Should Choose a Fee-Only Financial Planner
Certain financial advisors make their money by charging you an hourly fee for advice. Alternatively, they may set fees for certain services and packages.
Some financial advisors, on the other hand, make money on commissions for deals they recommend for you. They get paid by other people to sell you things.
As you can see, there will be cases where your interests do not exactly align. Given this possibility, you should prefer to work with advisors whose sources of income are clear to you. Preferably, they are only making money on the fees they charge you. That way you cut down on competing incentives to push you into sub-optimal investments.
5. Questions to Ask When Interviewing a Financial Advisor
You should interview your prospective financial advisor very carefully to make sure they are capable of delivering on your financial objectives.
In the interview, you should ask them about their investment philosophy and their approach to speculation.
Investment philosophy and attitudes to risk are some of the key factors that will determine the success of your work together.
Take note of the answers because they will give you good insights into their financial mentality. You can then decide if you and they are a match.
Source: https://www.life123.com/article/5-tips-for-finding-a-good-financial-advisor?utm_content=params%3Ao%3D740009%26ad%3DdirN%26qo%3DserpIndex&ueid=cbc818b7-e126-4380-8f5a-83ed6155fb0d
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