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Find a Financial Advisor with These Easy Steps

You’re not alone if you’ve always thought financial advisors were only for the wealthy. However, there are credible advisors out there who can help you on your way to financial freedom. At first, you probably won’t need many hours with an advisor—you may only need initial guidance on a plan to manage and grow your savings and retirement. By the time you need more advanced asset management, you’ll probably have more money to pay for more in-depth financial advice.

The investment of time in selecting the right financial advisor for you will be worth the peace of mind and financial advantage it can bring. Follow these steps to find the perfect match.

  1. Decide which type of financial advisor you need. Financial advisors offer services ranging from financial planning to investment management, retirement income planning, and wealth accumulation. First identify which services you need most right now. If you’re just starting to look at financial advisors, one offering financial planning is probably what you need, as they focus on all aspects of your financial life—how much to save, how to pay off debt, and types of insurance.
    Investment advisory services focus on what investments to own and in which accounts as part of an ongoing financial planning process. Retirement income planning focuses on coordinating Social Security, taxes, investments, ​pensions, retirement date, etc. to align with a retirement goal.
    Ask family, friends, and colleagues for recommendations once you decide what type of advisor you’re looking for. Other valuable resources include The Garrett Planning Network website and The Accredited Financial Counselor website.
  2. Seek reputable credentials. Credentials for financial advisors are earned by passing examinations, adhering to an ethics policy, and meeting continuing education requirements. Reputable credentials include CFP (Certified Financial Planner), CPA (Certified Public Accountant), PFS (Personal Financial Specialist), ChFC (Chartered Financial Consultant), or CFA (Chartered Financial Analyst). For fee-only advisors (more on that below), see if they are a member of The National Association of Personal Financial Advisors, a membership that requires continuing education beyond required credentials.
    Perhaps the most important qualification to look for is the term “fiduciary.” A fiduciary financial advisor/planner (or any other title variation) is legally bound to put your best interests first, before their own. This means only recommending financial products and actions that meet your needs and budget and are the best possible options.
  3. Learn how they’re compensated. There are three categories of compensation for advisors.
    Commission-based advisors (brokers, insurance agents, registered representatives) sell financial products (mutual funds, annuities, insurance) and receive commissions on those sales. This compensation structure puts the advisor’s primary loyalty to the broker/dealer who pays them for the sales of these products. They may not have your best interests in mind.
    Fee-based advisors are usually affiliated with a broker/agent and hold a license to sell investments or insurance for a commission. Some may include financial planning in their fees for managing your investments, or they may charge a separate fee or hourly rate for advice.
    Fee-only are the most objective and unbiased financial advisors. They have a fiduciary duty to act in your best interest and only make money through flat fees, hourly rates, or a percentage of the assets they manage. They also usually provide more comprehensive advice regarding estate, retirement, investing, tax, education funding, and insurance planning.
  4. Ask these questions. These four questions will help you weed out financial advisors you don't communicate well with, identify their expertise and ideal client, and understand how they can help you.
    1. Who is your ideal client? You want an advisor with expertise working with people in your situation—age, stage of life, asset/income level, and goals.
    2. How long have you been practicing as a financial advisor? You should also ask what financial subjects and tools interest them. Their answers should reflect your needs as a client. Their continuing education and professional interests should align with the clients they serve.
    3. Have them explain a concept you don’t fully understand. Make sure you can understand their explanation and you feel comfortable asking for clarification if you don’t. You want someone who explains financial concepts in a language you understand.
    4. How are you compensated? They should be willing to explain how you’ll pay them. Be wary of answers like “My company pays me,” or “You won’t pay anything out of your pocket.” Those aren’t wholly truthful answers and are red flags.
  5. Understand how to spot fraud risks. A reputable financial advisor should use a third-party custodian to hold your assets, like Charles Schwab or Fidelity. The advisor can place trades and offer advice and services on your account, but the custodian reports the transactions to you, verifies signatures, and more. Be cautious of advisors or firms who have custody of your money or co-own other investments or firms they are recommending to you.
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