Financial advisors have to put food on the table, too. But the way they earn a living from their advice differs.
- You pay an hourly or project fee, or a percentage of assets under management.
- Commission-only: Compensation is rendered after you buy financial products from your advisor.
- Fee-offset: Fees are deducted from commissions.
- Combination Fee/Commission: You pay a fee for advice and commissions on recommended products.
- Salary: The financial institution that hires the financial planner pays his salary.
Seek referrals from friends and family
Ask people you trust to refer their financial planners. If you've got kids, ask a friend with kids. If you're reaching retirement age, ask advice from someone in the same boat. Then, when you get a name, Google it to find out additional information about the planner. Has he or she been Yelped favorably? Any news stories pop up? The more you know about your financial planner, the better.
Make sure you mesh
If you pick wisely, your relationship with a financial advisor can last for decades. Although it's hard to see into the heart of anyone, ask leading questions to see if your financial goals mesh with the advisor's.
When you interview advisors, ask how they'll incorporate your particular situation into a financial plan. Ask if they personally research the products they recommend and whether they receive a financial incentive for pushing one product over another. Also, ask how long they take to return calls, which will become an issue on days when the market is in a freefall.
Remember that you're investing for the long term — you want to choose an advisor for the long term as well.