I’ve never met anyone who regretted saving money.
A valuable tool on the journey towards accomplishing savings goals can be a financial advisor. But, many people share some of the same general questions about advisors. Here’s a sample of those we receive most often at Lighthouse:
- What qualifications should an advisor have? FINRA and the SEC, both regulating bodies for the financial services industry, and individual states, require different licenses depending on whether the advisor is selling products or advice. The most common licenses include the Series 6, 7, 63, 65, and 66, state insurance licenses, and the CFP® (Certified Financial Planner) designation. The most important factor is that the firm/its advisors are fiduciaries.
- I hear the term ‘fiduciary’ often – what does it mean? An advisor’s licenses, and the firm’s set-up, determine whether they are a fiduciary. The term means the advisor is required to act in the best interest of a client. Non-fiduciary advisors are held to a ‘suitability’ standard, but not to the fiduciary ‘best interest’ standard.
- How do advisors get paid? Advisors get paid based on the licenses they hold and the products they sell. Some receive upfront commissions for products sold; some receive recurring management fees for assets they manage. Ask how compensation works so you always understand what you’re paying.
- How do client/advisor relationships work? Open communication is crucial to the client/advisor relationship. Major life updates should be shared with your advisor as many factors alter your short- and long-term investment goals. Your advisor should be available to answer questions, make adjustments, and review annually at minimum.
- How do advisors invest my money; do I retain input? Both your capacity and ability to take risk should be the focus of an important ongoing discussion between you and your advisor. Based on your risk tolerance and financial situation, your advisor should create an investment allocation and strategy specific to you. This is your money, you always have input.
- How do advisors make decisions for my money? Advisors draw on many resources including expertise in the subject matter, available technology platforms, current tax laws, industry benchmarks, and peer research. Of course input from you, the client, is also weighed when making important, strategic moves.
- Is my money ‘stuck’ once I move it to an advisor? Some products come with surrender fees and specific holding periods – but not all products. Some accounts have age restrictions in turn for tax preferred treatment. For accounts eligible to be moved, such as retirement accounts, if done correctly, there should be no income tax consequences. If moving non-qualified accounts, there is the potential for capital gains exposure, so be sure to discuss strategy with your advisor so as to not have an unpleasant surprise at tax time. Your ability to move your money (and how quickly) depends on the product or services for which you have contracted the advisor.