Selecting the perfect financial advisor for your needs can be tricky. There are usually multiple financial advisors in each city and we highly recommend speaking with several before making a decision.
Consider both objective factors, some noted below, and subjective factors. Why subjective? Because you need to feel comfortable working with the advisor you choose, and you need to trust them. Don’t ignore your “gut feeling” when speaking with potential financial advisors. It just might save you a lot of headache and heartache down the road.
Now, here are a few tips to help you make the best decision when evaluating financial professionals to work with.
1. Decide what help you need.
The term financial advisor is, unfortunately, unregulated. Because of this, it is often unclear exactly what level of help the advisor can provide.
Many financial advisors focus on just one area of your financial life. In this case, they might be an insurance salesperson, an investment manager, a tax preparer, or work in another financial profession. These professionals are great options if your needs are limited in scope to one financial area of your life.
There are also advisors who are holistic* financial planners. These professionals include each of the areas above in their planning services – plus a lot more. A holistic approach will look at your financial landscape and consider each factor when developing a unified plan to achieve your personal goals.
* Cambridge Dictionary defines holistic as “relating to… the total system instead of just to its parts”
2. Consider a fee-only financial advisor.
Traditionally most financial advisors made money through sales and commissions. Even today this remains a popular compensation model. The challenge is that when someone is paid varying commission levels for products and services it’s in their best interest to sell the solutions that earn them the most money.
Now, just because someone gets paid on commission doesn’t mean they are giving bad advice. In fact, commissions are about the only way insurance brokers get paid. But it does create an obvious conflict of interest that should be disclosed and navigated.
A fee-only financial advisor does not get paid any commissions or sales incentives. The only compensation they receive for services is the fee agreed upon in advance and paid directly from their clients. This allows them to “sit on the same side of the table” as their clients to advocate for the client’s best interests.
3. Work with a fiduciary.
Consider working with a financial advisor who will function in a fiduciary capacity for you. Make sure it is in writing though.
Financial advisors who are fiduciaries are required to act in the best interests of their clients when providing financial advice — even if those interests are in conflict with their own.
How do you know if your financial advisor is acting in a fiduciary capacity for you? Ask them to show you where this is noted in their service agreement.
It is far too easy for someone to just say they will function as a fiduciary for you. But when it comes to putting this in writing as part of a signed service agreement, many advisors make excuses. When such a powerful statement is in writing it can open the advisor up to a legal challenge if they don’t follow through. A true fiduciary committed to operating in your best interest shouldn’t have a concern pointing out their written fiduciary statement.
4. Is the financial advisor independent?
An independent financial advisor isn’t tied to products from a single firm. Being independent allows your advisor to recommend the best solution for your needs, regardless of the brand or provider. This freedom also allows them to shop around for the lowest cost solution if multiple similar options are available.
If an advisor isn’t independent they might not have access to as many solutions for their clients. Limited choices can sometimes lead to less-than-ideal or over-priced recommendations.
Fee-only, fiduciary, independent – video
There is one more big tip below, so don’t miss it, but here is a short 2-minute video talking further about the benefits of fee-only, fiduciary, and independent advisors.
5. Consider a CERTIFIED FINANCIAL PLANNER™.
While the use of “financial advisor” isn’t regulated, the terms CERTIFIED FINANCIAL PLANNER™ and CFP® both are.
Achievement of the CFP® designation shouldn’t be the only, or even the #1, selection criteria. There are quite a few CFPs® who don’t actually perform financial planning. There are also many who have decided not to operate fee-only and are functioning as commissioned salespeople.
So why bother looking for a CFP®?
What you do know when working with a CERTIFIED FINANCIAL PLANNER™ professional is that the advisor has a college degree plus specific training in:
- Principles of Financial Planning
- College & Education Planning
- Risk Management & Insurance Planning
- Investment Planning
- Tax Planning
- Retirement Savings & Income Planning
- Estate Planning
- Financial Plan Development (Capstone)
Additionally, every CERTIFIED FINANCIAL PLANNER™ professional had to pass a comprehensive six-hour proctored exam that covered each of the topics mentioned above. Having gone through this process myself, I can tell you that the exam is intense! With a historical pass rate around 60%, you can understand why only about 25% of financial advisors have achieved this certification level.
That’s not all.
Active CFP® professionals also need at least three years of experience working directly with clients on financial planning. Plus they have stringent continuing education requirements to make sure they stay current with recent laws and practices.
Working with a CFP® practitioner assures your advisor has demonstrated a wide range of industry knowledge – and keeps that knowledge current through continuing education.
Selecting your ideal financial advisor
None of these tips should be considered in isolation. Decide which factors are most important to you then look for an advisor that best meets your needs. Your ideal advisor might have one or two of the above qualities or all of them. This is a personal decision that you need to make based on your specific situation.
Also, don’t forget that personal finance is very PERSONAL. So talk to several advisors and make sure you select someone you trust and will feel comfortable working with. If you don’t enjoy talking to the person or “have a bad feeling” about them, you should probably keep looking – regardless of whether they align with these tips or not.
As you’ve likely guessed, I’m an independent fee-only fiduciary CFP® professional who provides holistic financial planning strategies. If you want to learn whether working together makes sense, just schedule a call and we can discuss it.