How to Choose a Financial Advisor You Can Trust

There are people who just love to manage their own finances and build their own diversified portfolios. They spend countless happy hours poring over annual reports, reviewing the stock market tables and analyzing financial reports. They know what a price-earnings multiple is, and they can calculate dividend yields in their deep.

Then there are the rest of the population - people who are too busy working at their jobs, raising their children and living their lives to worry about finances. They know that they need to save for retirement and set financial goals, but they are unsure how to go about it. Financial advisors work to serve people like that, but it is important for those individuals to choose an advisor they can trust.

Not all accountants are the same, and choosing the wrong one could hurt your financial life instead of helping it. First and foremost, you need to choose a financial advisor you can trust and one who is willing to put your financial interests first. You also need to choose a financial advisor who is experienced and competent, one who has been able to thrive in both up and down markets.

You can start your search for the perfect financial advisor by asking each potential partner how he or she is compensated. Some financial advisors work strictly on commission. They derive no income from the clients they serve; they are compensated directly from the investments they offer. The problem with this arrangement is that it can introduce some serious conflicts of interest. While there are some excellent commission-based financial advisors out there, it is often difficult to tell the good ones from the bad.

Other financial advisors receive compensation from the clients they serve, while also earning commissions based on the products they sell. These financial planners often advertise themselves as fee-based advisors. Again, there are many competent fee-based advisors out there, but they can suffer from the same kind of conflict of interest as their commission-based counterparts.

The third category of financial advisor is known as fee-only. These advisors do not derive any income from the investments they sell or recommend; they are paid solely by the clients they serve. The fees charged will vary from advisor to advisor, but many firms charge about 1 percent of the assets under management.

If you choose a fee-only financial advisor, you will need to pay for the advice you receive, but you will not have to worry about a conflict of interest. A fee-based advisor who takes a fiduciary interest in you and your money is required by law to put your interests - and not their own -first.

Once you have determined which category of financial advisor is right for you, it is important to make sure the advisor you choose has the skills to guide you through all kinds of market environments. You will want to choose an advisor who has plenty of experience investing in bear markets as well as bull markets. If you choose an experienced advisor, that individual will be able to provide valuable advice and guidance when the markets are at their scariest, and stop you from making rash decisions that could derail your finances for years to come.

Choosing a great financial advisor is not always easy, but it is important to persevere. The choice of financial advisor is one of the most important you can make, and you do not want to choose the wrong person to manage your finances