If you’re searching for a financial advisor, it is necessary that you ask many questions. After all, it’s your money ProfitiX Broker that’s on the line. Here are the four most essential things to know about your financial advisor.
Fiduciary
A fiduciary is an advisor that is required to act on your best interest at all times. Although you might think that this must be a given for all advisors, a lot of professionals are not held to this requirement.
Many advisors’ actions are subject to suitability standards and this means that they are obliged to make recommendations that are suitable for you, although such recommendations may not be the best for your interests.
In a nutshell, this means that if they receive a commission from Profitix Broker Review selling you a financial product, and it loosely fits into your investment strategy and portfolio, they can recommend it even if there are other much better options on the table.
You ought to make sure that your financial advisor is a fiduciary that is committed to acting on your best interests all the time.
Investment Philosophy
In many cases, you can categorize investors into two groups, namely active investors and passive investors.
Passive investors try to match the markets’ returns through index funds. This style usually involves broad diversification, low costs, and low taxes. Meanwhile, active investors try to beat the market by selecting the best stocks or mutual funds or jumping in and out of the market at the perceived “right” time.
Active investing usually involves less diversification, higher costs, and higher taxes. It also involves greater uncertainty since your performance will be based on the bets that your advisor makes. There’s not necessarily a right or wrong answer, but it’s extremely important to be aware that research shows that active investors underperform broad markets.
The trick here is to ensure that your financial advisor’s investment philosophy fall in line with your own.
Tracking Goals
The financial advisor that you get should be able to help you build a comprehensive financial plan and investment strategy that puts on your way to achieving both your long term and short term goals.
That person should be able to walk you through how your strategy will reap results over the longer term. He or she should also be able to ensure that your asset allocation is in line with your retirement goals and time horizon. This person should be good at adjusting the plan depending on the changes that happen in the broader market.
Compensation
Financial advisors are typically compensated in three ways: fee-only, commission-only, or fee-based.
Fee-only advisors get their cheese solely by the fees you pay them. And because their compensation isn’t based on the investments they recommend, you don’t have to wonder if they’re giving recommendations that makes them a tad richer than they ought to be.
On the other hand, commission-only advisors are paid through the receipt of commissions on the financial products that they sell. This doesn’t necessarily mean they’re up to some shady business, but it can create a great conflict of interest. Thus, you should ask more questions about their compensation and model and why they are recommending a certain investment.
Meanwhile, fee-based advisors use a combination fo the first two. You have to pay some fees for their services and they may also receive some commission for selling a certain investment product.
