By Michael "Drew" Tyler, CFA | April 2025
Here are the most important points to consider when selecting a financial advisor:
1. Fee-Only Compensation
Ensure your advisor operates on a fee-only basis. Fee-only advisors are paid solely by the fees you pay them, with no commissions or product incentives. This reduces potential conflicts of interest and ensures their advice is centered on your best interests.
2. Fiduciary Standard
A fiduciary advisor is legally required to act in your best interest. Make sure your advisor follows this standard and is willing to put it in writing. This provides added confidence that their advice is unbiased.
3. What Are You Actually Paying in Dollar Terms?
It’s important to know exactly what you’re paying for the services you receive.
Flat Fee vs. AUM Fees:
• AUM Fees: Typically, around 1% of your assets that the advisor manages annually, this can get expensive over time, especially if your portfolio grows because you save more money, inherit significant funds, or the market goes up significantly.
• Flat Fees: A flat fee model charges a fixed dollar amount for comprehensive financial planning services and investment management. Although flat fees might seem higher for smaller portfolios, they provide predictability and are often more cost-effective in the long run, especially as your portfolio grows.
With AUM, you could end up paying more as your portfolio grows. In contrast, flat fees remain fixed, which can save you money in the long term, assuming the flat fee advisor doesn't drastically increase fees.
4. How Many Clients Does the Advisor Have?
The number of clients an advisor manages can indicate how much personal attention you’ll receive. A smaller client base may result in more tailored advice, while a large client base may mean less individual attention.
5. Focus: Investments or Comprehensive Planning?
Some advisors focus only on the investment management side of things, while others provide comprehensive financial planning that covers retirement, taxes, estate planning, and more. Choose an advisor who offers the services that match your needs. If you require holistic planning, make sure they provide more than just investment advice.
Final Thoughts
Choosing the right financial advisor is crucial for your financial success. Make sure they offer a fee structure that aligns with your goals, provide comprehensive planning services, and adhere to fiduciary standards. With the right advisor, you can be confident that your financial future is in good hands.
This post is for educational purposes only and should not be considered financial advice.