01Understand the Types of Financial Advice Available
Some financial advisors offer financial planning services but not investment management; others manage investments, but provide little financial planning. Some have expertise in retirement income planning which is focused on the distribution phase (for those near or in retirement) while others focus on the accumulation phase (for younger folks who are ten years or more away from retirement).
To find the best financial advisor for your situation you need to understand the differences in the types of services that may be offered, know what type of financial advice you need, and know which services a potential advisor provides. Here's a brief summary of three main types of service offerings:
- Financial planning focuses on all aspects of your financial life such as how much to save, and what type of insurance you need - it is not just about the investments.
- Investment advisory services are focused on the investment management functions such as what investments to own in which accounts. I believe the best investments are chosen only as part of an ongoing financial planning process.
- Retirement income planning is focused on how you coordinate all the pieces such as Social Security, taxes, investments, pensions, retirement date, and so on, so they all align toward the goal of delivering a retirement paycheck for life.
02Seek Financial Advisors with Reputable Credentials
All credentials are not alike. Some organizations create easy-to-get credentials for a fee so that sales people can pay the fee, acquire a "credential" and appear to be an expert.
To find advisors or financial planners with reputable credentials look for someone who has their CFP® or PFS designation, or an investment advisor who has their CFA®. And, if you're near retirement, find someone with specialized training in this area, like an RMA or RICP.
Credentials are obtained by passing an examination which demonstrates proficiency on the subject matter. To maintain the designation, an advisor must adhere to an ethics policy and meet continuing education requirements.
Another thing you can check - see if a potential advisor is a member of NAPFA, which is a membership group of fee-only advisors that requires continuing education that goes beyond what even the credentials require.
03Know How Financial Advisors Are Compensated
There are numerous ways financial advisors can charge, but in my opinion, the most objective and unbiased financial advisors are fee-only. To hire the best financial advisor you’ll need to know all the ways a potential financial advisor may be compensated, such as charging an asset based fee, hourly fee, participating in commissions or charging an hourly rate.
And you’ll want to understand the difference between a fee-only advisor who represents you - and non fee-only advisors who may be able to receive other types of kick-backs or incentives from their company based on meeting sales goals or objectives.
There is nothing right or wrong about various compensation types. For example, if you are buying an investment that you plan on holding for a long time, and for which you will not need ongoing advice, paying a commission may be the most cost-effective way to buy it. However, if you have the desire to have someone readily available to update your financial plan and address ongoing questions, a commission-based fee structure is likely not optimal.
04Use Search Engines to Screen for Criteria
Online search engines can be a great way to narrow down your search to advisors that are in your zip code, have the credentials you are looking for, or charge in a specific way such as an hourly rate, or work as fee-only (meaning no commissions).
Each of the five search engines on this list allows you to put in specific criteria about the type of advisor you are looking for - such as their credentials and method of compensation - and then search for the financial planners in your area who meet those criteria.
As far as location, keep in mind, many firms work with clients remotely. It allows you to pick an advisor based on expertise rather than location. My firm specializes in retirement income planning, and although we are located in Arizona, we work with clients all over the country. Not everyone is comfortable working remotely, so you have to decide how important it is to sit across the conference room table, or if working via computer meetings would be acceptable.
05Ask These Questions Before You Hire
The right questions can help you weed out financial advisors whom you don't communicate well with, or who don't typically work with clients like you.
I've created a list of five interview questions that can help you determine how the financial advisor communicates, as well as their area of expertise and their ideal client. The key to any question you ask is making sure you understand the answer, or if you don't, be sure you feel comfortable asking follow up questions.
One question I see suggested in other articles is to ask someone for references. Due to privacy regulations, many advisors cannot hand out the names of other clients - and even if they could, they are only going to give you names of people who will say good things about them. Also, did you know regulations prohibit financial advisors from using testimonials? It's true! Advisors cannot use or share direct quotes, thank you's, or letters of recommendations sent to them from their clients.
It's always best to ask your own questions that mean something to you. I've had people come in and read questions off a list where it was clear they did not understand what they were asking. Don't do this! Use questions that you understand.
06Verify Credentials, Check for Complaints
To be sure someone is legitimate and has a good service record before you hire them; verify a potential financial advisor’s credentials and complaint history by checking their records at FINRA, the SEC, the CFP® Board, or with other membership organizations the advisor is associated with.
One online site, , can help you easily see which organizations an advisor is registered with and if they have any disclosure items or complaints they have reported.
Formal customer complaints stay on a financial advisors record for a long time. If an advisor has a complaint that doesn't mean you rule them out. The longer someone has been in business, the more likely it is they will have at least one complaint on their record. If someone has multiple complaints, you may want to keep looking.
Many of the online search portals mentioned in step five do all this background checking for you and show results of advisors who have already been pre-screened to have the proper credentials and who have been ruled out if they have an excess number of complaints.
07Learn How to Spot Fraud Risks
Fraud is more easily perpetrated when someone has custody of your assets. To avoid having custody of client funds most reputable financial advisors will use what is called a third party custodian to hold your assets. It means your accounts would be opened at a large, well-known firm such as Charles Schwab or Fidelity; the advisor would be able to place trades and offer service on the account - but it is the custodian that reports transactions to you, verifies signatures, and much more.
Be cautious of advisors or firms who have custody of your money, or own another related firm that serves as the custodian - that is exactly how was able to pull off his scheme successfully.
Also, take extra precautions when talking to advisors or firms that co-own other investments or other firms that they are recommending to you. The ownership structure and any related entities should be listed in the firm's disclosure document called an .
If these seven steps seem like too much work, stop and think of all the background checks a business does before making a hire. You are hiring someone to help with a very important aspect of your future; these seven steps will help you make the right hire.
How to Find the Best Financial Advisor Near Me in Easy Steps
Think of hiring a financial advisor like hiring a Chief Financial Officer for your family. You want to use a disciplined process to find someone you can work with for many, many years. Finding the right person or firm may take a little more time than simply opening the yellow pages, but the investment of time will be well worth it in terms of your peace of mind knowing you made the right hire. Here are seven steps you can use to find the best financial advisor for you.