How to Find and Choose a Financial Advisor

Oct 17

Many seemingly simple decisions in life can radically impact your future happiness. Selecting a financial advisor is one such example, so how should you go about finding “the one”? This article is a great place to start.

Pinpoint your financial needs

Know what you’re looking for before embarking on your search. For example, do you need help managing debt or some guidance when it comes to investing? Perhaps you’re looking to develop an estate plan or want to know your college savings options? Understanding your pain points can help you save time and narrow your search as advisors don’t always offer or focus on the same services.

Familiarize yourself with different types of financial advisors

All financial advisors will help you manage money and reach your financial goals in diverse ways, so knowing how these professionals differ is instrumental in your search. Let’s explore some of these differences…

Brokers. If you’re only looking to buy and sell securities such as stocks and bonds, you’ll need a broker: essentially an intermediary between investors and a securities exchange. In doing so, you can choose between full-service outfits (e.g., Morgan Stanley, Stifel, or Merrill Lynch) and their discount counterparts such as E-Trade or TD Ameritrade. While the latter charge lower fees and commissions, they require you make investment decisions on your own whereas full-service brokers provide personalized investment advice.

Robo-advisors. Also known as “automated investment advisors,” these online platforms offer computer-generated financial planning and investment services. Betterment and Wealthfront are two of the most popular examples, and robo-advisors are best suited for novice investors who don’t have a lot to lose, those with basic investment management needs, or investors looking to pay as little as possible since they’re relatively inexpensive. Some of these platforms also provide access to a human financial advisor.

Investment advisors. Simply put, these advisors provide clients with investment advice while managing their investment portfolios for a fee. While this option is more expensive than a robo-advisor, it offers more personalized service and access to additional types of investments.

Financial planners. These professionals offer much broader services than investments alone, integrating numerous financial components—spanning savings, insurance, and taxes—to fulfill both short- and long-term aspirations.

Wealth managers. Representing a hybrid of investment advisors and financial planners, these professionals primarily serve high-net-worth and ultra-high-net-worth clients.

While some very clear distinctions exist between the types of professionals discussed herein, keep in mind that roles often overlap as well (e.g., many financial planners also offer investment advice and management services). Either which way, you should have a clearer picture of what to look for now that you’re familiar with different types of financial advisors and unique services offered.

Understand financial advisor certifications

First and foremost, you’ll want to consider an advisor’s credentials as various designations are not the same—and they do matter. Seeking a financial advisor with a CFP® designation? You’re on the right path! It’s the most widely recognized credential.

Regulated by the Certified Financial Planner Board of Standards, CFPs® must pass a difficult exam and meet strict standards with respect to education and work experience. Better yet, CFPs® are held, by law, to a fiduciary standard: meaning they’ll always put your best interests above their own (we’ll discuss this more in a bit).

Using Google to search for a CFP® near you and/or the CFP® Board’s online database to verify advisor designations, you may stumble across a few other credentials while performing your research. Get to know them, learning how each one differs from a CFP® professional (click here to explore professional designations).

For example, a chartered financial consultant (or ChFC) is a designation that follows the same curriculum as a CFP® but with additional electives. It is much less stringent, however, because it does not require an exam. ChFCs are also not held to a fiduciary standard.

A chartered retirement planning counselor (CRPC), meanwhile, specializes in retirement planning whereas a CFP® provides financial guidance across all aspects of an individual’s life (including retirement planning). As with ChFCs, CRPCs are also not held to a fiduciary standard.

Vet a financial advisor’s background

Beyond advisor credentials, you’ll need to dig a little deeper to ensure he or she didn’t leave a previous firm for disciplinary reasons and/or is not facing any pending disciplinary action; if this is in fact the case, you’ll want to dig even deeper or reconsider the relationship altogether.

You can visit Broker Check—a tool provided by FINRA, a regulatory agency for advisors who manage investment transactions—and the U.S. Securities and Exchange Commission (SEC) website to search financial advisors and identify any potential disciplinary actions against them.

Learn more about the financial advisor’s employer

With a list of potential financial advisors in hand, you’ll need to do a little homework on their respective firms to avoid the sting of buyer’s remorse. Specific details to consider include…

Getting advice vs. being sold to

In addition to “CFP®,” one of the most important acronyms to know is “RIA.” An RIA (registered investment advisor) is a firm or person who offers investment advice and is licensed by the SEC or a similar state office. More importantly, RIAs are fiduciaries: meaning they are legally required to put your interests above their own at all times during the relationship.

All other purported “financial advisors” are actually salespeople who operate within the broker-dealer category. Brokers follow a less rigorous “best interest” (BI) standard of care, falling short of the full fiduciary standards RIAs are held to, because they must only act in your best interest at the time a recommendation is made. Regulation BI also allows for commission-based compensation from employers or third parties, whereas RIAs are not paid on commission.

Choosing an RIA firm is your best bet if you want to feel confident you’re paying for the advice and services you want and need, rather than being sold products that score high commissions for your financial advisor; it’s therefore crucial to learn the precise standards your firm(s) of choice are held to.

Review firm disclosures

You’ll then want to research firm disclosures that outline operational details and other information to help you narrow your search.

With respect to RIAs, you can obtain a free copy of their Form ADV—which all firms must file with the SEC or applicable state jurisdiction listing services, fees, and detailed background information—from the Securities and Exchange Commission. FINRA’s BrokerCheck tool provides similar background information for broker-dealer firms.

Be sure to keep a few goals in mind when examining firm disclosures, including understanding the firm’s business model to help identify potential conflicts of interest (e.g., if the company sells proprietary products or services).

Regardless of fee structure (fee-based, commission-based, subscription, etc.), it’s important to fully understand what you are paying for while also checking for any disciplinary action against the firm—noting you may want to move on if you stumble upon this.

Finally, pay attention to which custodian the firm employs to manage client assets: ideally a well-known, independent third party as part of a transparent relationship.

Organizational structure

You’ll also want to ensure other CFPs® work at the firm so you can feel confident you’ll remain in good hands should your financial advisor leave (and you decide to stay with the firm).

Build rapport with a financial advisor

One rule of thumb to never underestimate is your level of comfort with an advisor. Many firms and advisors offer free initial consultations for this very reason, so take advantage of this opportunity to shop around after narrowing your list to two or three options.

In doing so, ask questions about how often your advisor will communicate with you and how he or she defines success in a client relationship. Even more critical? Assess how well the advisor will listen and work to understand your own unique financial situation and goals.

In looking to build rapport in an hour-long initial meeting, keep in mind that selecting a firm can have far-reaching implications for your financial future. It’s therefore important to weigh your options carefully before making a final decision.

How to find a financial advisor near you

While you can always start with an online financial advisor matching service or check with professional organizations such as the Financial Planning Association, advisors pay to join these networks so this will likely limit your options; we therefore recommend kicking off your search by polling your social network for recommendations and/or using various online search tools (e.g., the CFP Board website) that allow you to search using multiple criteria including location, client focus, and preferred language.

In sum: how to find and choose a financial advisor

Whether you’re primarily seeking investment advice or help with retirement planning, choosing the right financial advisor requires a holistic approach that not only considers his or her track record but also your client-advisor rapport. After all, when you find “the one,” you want that relationship to last a lifetime and summon a fruitful experience.

Vision Retirement offers FREE discovery calls with CFP® professionals. Schedule an appointment to learn if our expertise is a good fit for your needs.

FAQs

When considering fees, it's crucial to understand that costs can vary significantly based on the type of advisor and services offered. While opting for a robo-advisor (which often charges between 0.25% and 0.75% of your annual account balance) can save you money if your financial situation is straightforward, those who have a complicated financial situation or are craving more guidance might be charged 1% to 1.50% of their account balance for an in-person advisor.
The term “adviser” is considered an older and more traditional spelling of the same word; the U.S. Investment Advisers Act of 1940 in fact used it to refer to individuals who were required to register with the SEC or their state if they were earning a fee for making investment recommendations or conducting securities analyses. Today, these two terms are used interchangeably and refer to the same type of financial professionals.
Financial advisors utilize various fee structures, with some charging a flat fee regardless of services provided, a percentage of investment assets they manage, or by the hour. Other advisors are paid high commissions for selling products, which naturally results in a conflict of interest. Want to feel confident that your financial advisor isn’t offering biased advice so he/she can receive product commissions? Team up with a professional who has CFP® credentials and is thus held to a fiduciary standard.