Thu Jun 06 2024, by Tyler Gardner

1. What Are the Fees?

If your financial advisor is charging a percentage of assets under management, you should consider this a red flag. Look for advisors who charge a flat annual fee, no matter how much money you have. Otherwise, you might waste hundreds of thousands of dollars over your lifetime.

2. Interview Several Advisors

Ask the advisors what they would do with $100,000 of your money. If they suggest putting it in low-cost index funds, you can do that yourself — run for the hills! If they mention mutual funds, beware! You’ll be paying fees for both the mutual funds and the advisor. If they propose investing in individual stocks and bonds, keep in mind that 90% of advisors underperform the market over a 20-year timeline. Make sure they have a solid strategy before entrusting them with your money.

3. Ask About Their Performance

Financial advisors must show aggregate performance data, not just the winning track records of select clients. Ensure that they present net performance, which reflects returns after fees. This transparency is crucial for understanding the true value of their services.

4. Check Their Credentials

Look for qualifications like CFA, CPA, or MBA, as these credentials indicate substantial knowledge in finance. A simple Series 7, 65, or 66 license doesn’t necessarily reflect expertise in investment strategies.

5. Experience Matters

Consider the advisor's experience in both economic booms and busts. While it may be ageist, it's vital to find someone who has navigated recessionary periods successfully. You want an advisor who has proven resilience and insight.

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