How To Choose a Financial Advisor for Your Specific Needs

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A financial advisor is a certified professional. They help people manage their money so they can reach their financial goals. A financial advisor’s services include:

• Creating budgets
• Establishing savings plans
• Estimating future income needs
• Recommending insurance products

Finding the best financial advisor for your money situation is important. Here’s how to find one:

How To Find a Financial Advisor

There are a few steps you should take when looking for a financial advisor.

1. Appreciate the different characteristics of financial advisors so you can choose the right one
2. Learn what a financial advisor does
3. Understand how different financial advisors are paid
4. Know what questions to ask a financial advisor
5. Vet financial advisors to find one that you can trust

1. How To Choose a Financial Advisor

To decide what you want in a financial advisor, consider the following factors:

Fiduciary Duty

A fiduciary puts your interests first. They don’t take actions that would allow them to profit from their positions. They also disclose potential or current conflicts of interest. Any financial advisor can choose to abide by fiduciary duty. However, not all of them are required to do so.

Credentials

Financial advisors come from many different backgrounds and offer a variety of different services. Their credentials provide insight into their:

• Education
• Experience
• Areas of practice

Here are some of the most common titles held by financial advisors.

Certified Financial Planner

A CFP is a professional designation issued by the Certified Financial Planner Board of Standards. They offer general planning advice on a wide variety of issues like:

• Investing
• Saving
• Paying for college
• Purchasing long-term care insurance
• Choosing a mortgage
• Planning for an estate

To qualify for this designation, the professional must:

• Have at least a bachelor’s degree
• Have at least 6,000 hours of professional experience or 4,000 hours of apprenticeship experience
• Complete a CFP-Board registered program
• Pass a certifying exam
• Take 30 hours of continuing education courses every two years
• Follow designated conduct standards and an ethics code

Personal Financial Specialist

This is a professional designation issued by the American Institute of CPAs or AICPA. Those who hold this designation are experts in:

• Estate
• Investment
• Personal income tax
• Retirement and
• Risk management

To qualify for this designation, prospective candidates must:

• Belong to the AICPA
• Possess a valid CPA certificate issued by a state authority
• Have a minimum of two years of full-time teaching or business experience — or 3,000 total hours — in personal financial planning within the previous five years
• Have at least 75 hours of personal financial planning education within the previous five years
• Successfully completed the final certification exam

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Chartered Financial Analyst Certificate

The CFA Institute issues the chartered financial analyst designation. Investment advisors holding CFAs often work for corporate clients. But they are still regarded as investment management specialists. If you want help selecting stocks, look into an advisor with a CFA.

To attain this professional designation, candidates must meet one of these requirements:

• Have completed a bachelor’s degree or equivalent program and have received a degree
• Be in the final year of a bachelor’s degree program
• Possess a combination of work and university/college experience totaling at least 4,000 hours

Other requirements for this designation include:

• Passing a three-part exam
• Submitting professional reference letters

Communication Style

Communication style and is just as important as credentials. Before you meet, ask yourself:

• Do you like to be frequently updated on the market and presented with new ideas?
• Or would you prefer an advisor that only sends out occasional emails and year-end reviews?

Testimonials

During your first meeting with a financial advisor, they will talk about their personal strengths. However, reviews and testimonials from current clients might help you decide if their services are right for you.

2. What Does a Financial Advisor Do?

Financial advisors offer a range of services to meet the needs of their customers. Here are some of the most common types of financial advisors.

Robo-Advisors

Robo-advisors provide automated portfolios based on your preferences and needs. This digital service is available through websites and mobile apps.

They’re best for people who need assistance with investments but don’t require human interaction. They also tend to be cheaper than traditional financial advisors. Typically, they don’t include financial planning — only investing help.

Traditional Financial Advisors

Unlike robo-advisors, traditional financial advisors use a personalized approach. They also provide a full range of financial planning options.

As your life circumstances change, they can guide you in making the best decisions regarding your finances. If you desire face-to-face interaction, a traditional financial advisor is likely your best choice.

Online Financial Advisors

Online financial advisors offer traditional financial advising services. These advisors use technology to come up with your investment plan. They can conduct business over the phone or online.

This option is great for personalized advice at a lower cost.

Fee-Only Fiduciary Financial Advisors

Some financial advisors don’t work for commissions. Rather, they get paid an all-encompassing fee for their services. Typically, this fee is an annual fee of roughly 1-2% of a client’s assets. Although, there can be a broad range. As fiduciaries, they are obligated to act in your best interest rather than their own. A licensed, fee-only fiduciary advisor is paid directly by you. They cannot accept commissions for selling you specific products.

Registered Investment Advisors

Registered investment advisors, or RIAs, are financial professionals who carry a fiduciary responsibility. They must be registered with the SEC or licensed with individual states. Most RIAs directly manage money for clients. This involves making buys and sells of various securities on their behalf. Most RIAs are also fee-only fiduciary financial advisors. 

3. Understand How Different Financial Advisors Are Paid

Another important consideration when you’re searching for the best financial advisor is how they are compensated. Compensation is one of the factors that influence how much it costs to go to a financial advisor.

Here are the differences between the three forms of compensation: 

• Commissions: They typically sell investment products and earn money when they sell these products to customers.
• Fee-only: They might charge a flat, hourly or retainer fee to help customers manage their finances.
• Fees and commissions: They might charge a flat, hourly or retainer fee for financial planning services and earn a commission on eligible investments they sell.

4. Know What Questions To Ask a Financial Advisor

According to the National Association of Personal Financial Advisors, here are some important questions to ask a financial advisor you’re considering hiring:

• How are you compensated?
• Do you itemize commissions, if applicable?
• Do you accept referral fees?
• Are you held to a fiduciary standard at all times?
• Are you willing to sign a fiduciary oath that states you’ll always put my interests first?
• Have you ever been disciplined by the Securities and Exchange Commission or the Financial Industry Regulatory Authority?
• Do you provide full-service financial planning or just investment management?
• Do many of the clients you work with fit my profile?
• Will you or an associate work with me?

5. Vet Financial Advisors To Find One That You Can Trust

When you’re ready to start searching for a financial advisor, ask friends and family members for names ofadvisors they trust. Or, check professional networking organizations such as:

• The Financial Planning Association
• National Association of Personal Financial Advisors or NAPFA
• The Garrett Planning Network for advisors in your area

Some banks also have financial advisors on staff.

Unfortunately, fraud is not uncommon in the financial planning and advice industry. Always, look up the person on FINRA BrokerCheck.

Additionally, keep an eye out for signs of fraudulent activities from your financial advisor.

What To Watch Out For

Be on the lookout for any financial advisor — or anyone claiming to be one — who is involved in any of these potentially fraudulent activities:

• Claims to have special credentials or experience
• Promotes limited-time offers with a sense of urgency
• Offers guaranteed or overly consistent returns that don’t match market conditions
• Refuses to explain the investment, including how it makes money and the potential risks
• Promises large profits from a small investment
• Requires an advance payment

Are Financial Advisors Worth It?

Only you can determine if it’s worth it to pay a financial advisor. You may not need to pay an advisor if you’ve mastered the financial basics, such as:

• Saving at least 10% of your income
• Investing consistently for the long run
• Minimizing costs

However, if you’re just starting out — or, on the other side of the coin, if you’ve got a very complex financial life — an advisor may be more than worth it.

Final Take

Ultimately, what you’re looking for in a financial advisor depends on your personal goals. It’s important that you not only make sure that the financial advisor you choose offers the products or services you need but also that they are someone you can trust and relate to.

John Csiszar contributed to the reporting for this article.

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