5 Rules Millennials Should Follow When Picking a Financial Advisor
As millennials reach key financial milestones, from higher incomes to family planning and homeownership, many are considering hiring a financial advisor for the first time. But where should they start, particularly if this is their first time dipping their toes into money management?
We spoke with several experts to get their tips and suggestions for how millennials can choose the right financial advisor. Here are a few tips on how they should go about selecting the right one to fit their money needs and aspirations.
Consider This: Experts Share Money Advice They Would Give Their Younger Selves
Learn More: Start Growing Your Net Worth With Smarter Tracking
1. Make Trust the First Step
While most Americans have financial goals, many struggle to prioritize long-term planning like retirement. This is where an advisor can provide structure and accountability. The first step to building a relationship with a financial advisor is ensuring trust is the foundation of the relationship.
"This is critically important for millennials because, hopefully, this individual will serve as a trusted advisor through all of life's journeys -- career changes, family building, buying a home, wealth accumulation, through to retirement and legacy planning and life transitions such as divorce and widowhood," said Lacy Garcia, the founder and CEO of Willow.
Keep Financial Literacy Month going — learn how the MoneyLion app helps you track, manage and move your money in one place
2. Understand How Your Advisor Is Paid
According to Laura Adams, MBA, an award-winning personal finance author and expert with Finder.com, stockbrokers and some advisors are not fiduciaries and get held only to a standard called "suitability." They must recommend financial products suitable for a client's risk tolerance and goals.
"However, a suitable product may be the one that pays the broker the highest commission," Adams said. "In other words, a suitable product may be okay, but a conflict of interest could prevent you from understanding your options or buying a better product."
Instead of working with a financial pro who gets paid on commission, Adams recommended teaming with a fee-only advisor.
"They might charge an hourly rate, a percentage of your assets under management (AUM) or a fee to create a financial plan," Adams said.
3. Check Credentials -- Then Focus on Communication
It's important to know what qualifications and credentials a financial advisor holds to ensure they're a good fit for your needs.
"You can research any advisor's status and background using the SEC's Investment Adviser Public Disclosure and FINRA's BrokerCheck database," Adams said. "That's an important step to ensure no disciplinary actions or significant complaints have been filed against them."
It doesn't just stop at checking credentials, though. You should also ensure clear line of communication between you and your advisor to establish a relationship that will be the foundation for your financial future. Because millennials are still in the early or middle stages of their financial journeys, they need to choose someone they can have a strong relationship with for a long time.
4. Get Reviews and Recommendations
Reviews and recommendations can also be helpful in choosing an advisor.
"You might get a recommendation from friends or family or search online to find the best financial advisor," Adams said. Once you have a few advisors in mind, you can learn more about each of them to see who is the best fit.
"Follow them on social media -- LinkedIn and Instagram. You can see how they showcase themselves and what type of advisor and person they are," Garcia said.
5. Interview Your Financial Advisor
Once you think you've found the right advisor, Adams advised that millennials -- and really any age group -- interview their potential advisors and ask the following questions.
"What types of clients do you typically work with?"
"What services do you offer?"
"What are your professional certifications?"
"How do you make your money?"
"Are you a fiduciary? Are there times you don't act as a fiduciary?"
"Do you have any account minimums?"
"What is your approach to financial planning?"
"What information do you need from me to get started?"
"How many times and how often will we meet?"
"Are you available if I have questions?"
"Using an expert financial advisor to enhance your money management skills can help you maximize returns, save time, avoid mistakes and stay disciplined to follow a sound financial strategy," Adams said.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion: