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How to Choose a Financial Advisor

If you want to start building wealth, then thanks to the Internet there are many things you can do yourself: Get a basic understanding of markets, find interesting books and podcasts that teach you about finance and even see what other people are doing.

However, at some point, when your portfolio reaches a certain size, or you want to make sure you use the tax laws in your country to your maximum benefit, a financial advisor can be a great choice. In this article, we’ll highlight what a financial advisor is, how one can help you and how you can find a suitable advisor for yourself.

What is a Financial Advisor?

A financial advisor is a professional that helps people manage their money and attain their financial goals. Their work encompasses a broad range, from creating strategies for their clients on how to invest, create budgets for easier saving and spending overview as well as advice when buying a house. 

As diverse as their scope of work is, as diverse are their backgrounds. That’s why it’s important to really look deep into a financial advisor you’re considering to see if he or she is a fit for your needs. After all, picking a financial advisor is not a one-size-fits-all.

It also helps in making sure that your financial advisor will only sell or recommend you services that you truly need to achieve your goals, instead of recommending what would bring him the highest commission.

How to Choose a Financial Advisor

There are a couple of steps to take when choosing your financial advisor. In the following part, we’ll give an overview of the necessary steps and also go more in detail about each step and what’s helpful to do.

  1. Gain clarity on your financial goals and needs
  2. Get acquainted with the different kinds of financial advisors
  3. Understand what a financial advisor does
  4. Know how much you want to spend on a financial advisor
  5. Search for fitting financial advisors

1. Gain clarity on your financial goals and needs

For an advisor to know what to help you with, and also for you to be better able to what kind of financial advisor you require, it’s imperative that you gain clarity on your financial goals and needs.

Why do you want to employ a financial advisor? Do you want to start saving for retirement? Do you want someone to help you oversee and rebalance your investments? Create a budget for you (to pay off debt)? Need help with your taxes? Reframe your mindset about money?

All these benefit from slightly different skill sets and expertise, so knowing what you want, will ultimately help you in achieving it in the best possible way. It also gives you the ability to say no to offered services because you know that’s not what you need.

2. Get acquainted with the different kinds of financial advisors

Financial advisors come in many shapes and forms: tax advisors, financial planners, financial therapists, investment advisors etc. Some with a background in tax law, others with experience managing portfolios, and some even with therapeutic expertise.

Once you know your goals, you can determine what kind of financial advisor would be right for you.

3. Understand what a financial advisor does

This ties in with #3. There are a multitude of financial advisors, so let’s give a quick overview of whom to turn to with your needs.

Retirement planning: For this, you’ll want to consider an investment advisor, that can help you with understanding your future financial needs and wants and create a strategy to attain them.

Tax planning: If reading into the tax law of your country and finding the best ways to optimize them isn’t your cup of tea (who could blame you), then a tax advisor might be what you need. They know the law inside out and can help you minimize your tax burden.

Debt reduction: If you’re burdened by debt, then a debt counselor is the person to talk to. They often have connections to banks for debt consolidation, are experts in creating budgets and understanding the emotional component of the issue.

4. Know how much you want to spend on a financial advisor

Financial advisors either work by charging a percentage of the wealth they manage or is invested through them, or a flat- or hourly fee. A general fee many financial advisors charge is 1%; however, this varies widely.

For example, if you invest into a mutual fund through a financial advisor, then the fees for the fund + the ones for your financial advisor might come out to 5%. By setting a budget beforehand for a financial advisor, you can determine whether a certain advisor is a good fit for you or not.

For some services the government might even have rules on how much a financial advisor can charge, which is the case for tax advisors in Germany.

5. Search for fitting financial advisors

This is the culmination of everything we talked about. Look for a tax advisor who has the skill sets you require and is within your set budget. You can start the search on Google and then be sure to sit down with a few financial advisors to find one you feel comfortable with. Remember, it’s not a one-size-fits-all.

Frequently asked questions

When should I talk to a financial advisor?

Talking to a professional about your finances is always a good idea. Whether it’s to reduce debt or your tax burden, or finally start investing. However, a popular choice is to consult a financial advisor once you’re ready to put your money to work for you.

Is it worth it, paying for a financial advisor?

Depending on what the cost and the field of expertise you need advice in is, it can definitely be worth it. If the tax consultation costs you 1500 EUR but in turn saves you 5000 EUR every year, then that’s a net gain of 3500 EUR in the first year.

Is there free financial advice?

Through the rise of finance content on YouTube and the internet in general, you can attain a lot of general information freely. However, when it comes to solutions tailored to your needs, these are hard to come by for free.

Conclusion

A financial advisor can be a good choice for those that want to get a professional helping hand in their finances. Once you know what you want, you can pick a financial advisor who offers the required services and interview a couple of them.

If all goes as planned, they can help you reach your goals (faster) and you might even learn something along the way to further your financial education!


Are you interested in fixed income investing? Check investing opportunities in Lendermarket.

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