What to Look for in a Financial Advisor

When it comes to money management, hiring a financial advisor can be helpful in achieving your goals and reaching your desired level of financial independence. Understanding the fine print of investments and other money ventures is crucial to starting strong and staying strong over time. Financial advisors can help guide you in the right direction, but it's important to find someone you trust and feel comfortable with.

What to consider when finding a financial advisor

Whether you're in your 20s and just starting to think about your financial future or approaching middle age and planning for retirement, hiring a financial advisor is a big step in the right direction. The financial advisor you pick will take a close look at your current finances. This includes the four components of personal finance: managing your expenses, dealing with debt, building credit and saving money.

As you speak with the advisor, take note of whether they are indeed "advising" you and not pressuring you into one product or another. Remember that you are the one in control of your money. It's their job to give you the pros and cons of the options available and allow you to ultimately decide what's best for you. Here's what to look for in a financial advisor:

• Honesty – Transparency is very important in a client-advisor relationship. Before your first meeting, jot down a list of questions that matter most to you. This is your opportunity to see how compatible you are with the advisor based on their responses and interaction with you.

• Education – Look for financial advisors who have completed at least a four-year degree in finance, business or marketing. A Master of Business Administration (MBA) is a plus.

• Experience – Just because a financial advisor has been in the industry for years or even decades doesn't mean they're good at their job. An advisor's track record with clients is the best gauge of experience. Look to their website, customer reviews and LinkedIn profile for a sense of their results and connections in the industry.

• Credentials – There are many different titles and certifications that a financial professional can claim. It's important to know the difference between each so you can narrow down a list of the most suitable candidates:

  • Certified Financial Planner (CFP) – CFPs are often viewed as the most knowledgeable in their field and must meet requirements in four categories: education, CFP exams, work experience and ethics.¹ If the advisor claims to be a CFP, you can easily search their name or company name on the CFP Board's website.
  • Personal Finance Specialist (PFS) – This title can be earned by a Certified Public Accountant (CPA) who specializes in certain areas of financial planning. For example, if you want to focus your investments on estate planning, you can seek a PFS who specializes in that field.
  • Chartered Financial Analyst (CFA) – The CFA designation represents one of the highest levels of recognition financial professionals can earn in the field of investment management.² Candidates must pass three levels of exams on topics such as economics, ethics and security analysis. CFAs are also required to adhere to strict guidelines for proper conduct and transparency.
  • FINRA and SEC Registrations – If the advisor is affiliated with a securities broker-dealer or investment advisor firm, you can verify their FINRA and Securities & Exchange Commission (SEC) registrations on BrokerCheck.org. The search includes FINRA exams passed, employment history with regulated firms, customer complaints filed, and disciplinary actions.

• Clear Payment Structure – If you are unclear about the advisor’s fee structure in any way, be sure to ask questions. For example, some advisors may charge an initial planning fee or account registration fee. You should feel free to request a full list of charges you might incur so there are no surprises or discrepancies. Aside from fees, the major point to clarify is how the advisor will be paid. Advisors can be compensated in two ways: fee-only and commission. Fee-only advisors get paid a flat fee, hourly rate or percentage of your investments. Commission-based advisors are compensated through sales commissions, fees based on your investments or a combination of the two. To give you a general idea, 1% per year of assets under management is a reasonable fee to expect from commission-based advisors.³ Any professional advisor should offer a detailed explanation of their payment structure if a prospective client wishes to know.

Where to find a financial advisor

Start close to home. According to a recent survey, about one in four Americans get financial advice from their parents and friends.⁴ So ask those closest to you who they use for money management advice and whether they’re happy with them. Start with the people who have their finances in order. But keep in mind that what works for one person may not work for another. That's why the more questions you ask about the financial advisor's personality, experience and services, the better.

If there's a lawyer, banker or another professional you trust and have a good relationship with, it may be a good idea to ask them for a recommendation as well.

Another way to find a financial advisor is to look online. A quick Google search should yield quite a few results in your area. And don't forget to check out their online ratings and reviews to get an idea of how they treat their clients.

Also check for free resources in your area. The Consumer Finance Protection Bureau offers a wide range of free, reliable financial advice and resources online.

Be confident in your decision

Hiring a financial advisor takes confidence and a certain level of comfortability. The more effort you put into selecting worthy candidates, the better your odds at finding success. Once you feel you’ve found the best advisor for your needs, you can move forward with hiring a financial advisor who is looking out for your best interests.

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1. https://www.investopedia.com/terms/c/cfp.asp
2. https://www.accounting.com/certifications/certified-financial-analyst/
3. https://money.usnews.com/financial-advisors/articles/financial-advisor-fees-and-costs
4. U.S. Bureau of Labor Statistics. https://www.bls.gov/news.release/wkyeng.t03.htm

This article has been updated from a previous posting on October 1, 2020.