Personal Finance

10 Steps To The Financial Advisor Who's Right For You

Shutterstock photo

Have you ever looked at your finances and wondered if you're doing the right things to get you to retirement or other financial goals? If the feeling persists, it's probably time to run your plan by a qualified financial advisor.

But which one? There are many financial advisors and types of advisors both near and far. To find the right one you need to insist on the right qualifications and ask the right questions.

Investor's Business Daily spoke with experts in the industry to hear what they think are the most important things a potential client should do before choosing a financial advisor:

1) Get a referral. Almost all experts recommend getting referrals from friends, family and respected professionals. Ask people at a similar level of income and assets to make sure the advisor can handle your situation.

"It's important to understand that there are many different types of financial advisors," said Eleanor Blayney, the consumer advocate for the Certified Financial Planner (CFP) Board of Standards.

2) Pick the type. Before talking to anyone, Blayney recommends first deciding whether you want an investment manager or someone who takes a more holistic approach. Do you want someone who is just focused on the portfolio or a long-range financial planner to help figure out a comprehensive estate plan, with insurance, retirement and a plan to pay for college for the children?

3) Screen for CFPs and RIAs. People need to be aware that anyone can call himself a financial planner, Blayney noted. This is not a regulated designation. Some designations do come with coursework. Certified Financial Planner, or CFP, is the highest standard in the field of financial planning. CFPs have to take courses, pass exams on an ongoing basis and uphold a code of ethics. You can find a CFP at

You don't just want a CFP, you also want a registered investment advisor, or RIA, said Lisa Fox, the director of financial planning at South Texas Money Management, an RIA in San Antonio, Texas, with $3 billion under management. Both advisors and firms can be RIAs.

She said you want an RIA because they must register with either the Securities and Exchange Commission (SEC) or state securities authorities. More important, RIAs have a fiduciary duty to their clients. They are ethically and legally bound to work in the best interests of their clients and are subject to on-site audits to ensure compliance and that records are kept correctly. In addition, they must disclose discipline problems and conflicts of interest. You can find this information at

4) Decide on compensation. The most recommended way to pay an advisor is using the fee-only method. Here the advisor is paid a flat rate, an hourly rate or percentage of your assets under management. The fortunes of those paid in percentage of assets rise and fall with yours. If your assets shrink, his cut drops. The second is commission only. The advisor takes a commission off every product he sells: stocks, annuities, insurance, etc. It doesn't matter how well you do. He still gets paid. Finally, there's fee-based, which is a combination of the previous two.

5) Interview in the office. Interview at least three candidates at their offices. Why? Because a firm can look a lot bigger online. Even if you love the first advisor, interview all three.

6) Check education, credentials, business practices. Ask about the advisor's education, experience, credentials and accreditations. And ask about the firm's business practices, philosophy and core service. Are they really an investment advisor or an insurance company?

Ask which custodian holds your money. Is it an independent company and well-known?

Ask how often you'll receive account reports.

7) Ask about retention rate. "How many clients stay year to year and how many fire you?" said Lisa Brown, a partner at Brightworth, an Atlanta wealth manager with $1.4 billion under management. "Ours is 98%. We've tracked it 17 years. If someone says they don't know, it could mean a higher turnover rate than they want to advertise."

8) Ask for references. Ask for three references with a similar profile as yours, Brown said. And before you leave, ask: "What haven't I asked that I should be asking you?" The advisor might give a good question to ask in the next interview. And if it's applicable to your situation, it shows he was listening to you, which is a good sign.

9) Ask about hidden charges. Eric Hutchinson, managing director of United Capital Financial Advisors, in Little Rock, Ark., which manages $18 billion, and the author of "The Financial Briefing: Answers to Life's Most Important Money Questions" suggests asking, "What else do you charge for that hasn't been disclosed?"

10) Look who's talking? After the interview, reflect on who did the talking, Hutchinson says. Did the advisor show an interest in you or was he or she just try to sell you something?

Catching The Sites

Here are links to websites that you should check out before meeting with potential advisors.

The Financial Planning Association (industry trade group)

The Certified Financial Planner Board of Standards (issuer of the CFP designation)

The U.S. Securities and Exchange Commission's Investment Adviser Public Disclosure (oversees Registered Investment Advisers)

Financial Industry Regulatory Authority (self-regulatory body for broker dealers)


Big Medicare Choice: Medigap Vs. Advantage Plans

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Other Topics