The 3 Principles Of Good Financial Advice

Shutterstock photo

The advent of robo-advisors and other services have made saving for retirement easier than ever - at least to start. Plug into an investment profile form a few figures on income and assets along with information about investment goals and risk tolerance, and you're on your way.

[ibd-display-video id=3052401 width=50 float=left autostart=true] But add in homeownership, a mortgage, college debt, a family and health care and the complexity of wealth management can quickly grow beyond your expertise.

So before deciding to go it alone, first ask yourself whether you have the time, skills and discipline to do so.

No? Then the next step is to find professional help.

Anyone can call themselves a financial advisor or financial planner. But beware of those who just want to sell you an insurance policy or a mutual fund or promise above-average returns without providing a detailed financial plan based on your investment goals and risk tolerance. And beware of cold calls over the phone.

Special Report: 2018 Personal Finance Action Plan & 2017 Stock Market Review

You want a professional advisor who takes your whole financial picture into account and acts on your behalf as a fiduciary. Such pros can help you save, invest and manage your assets with a future goal in mind all the while acting in your best interest at all times.

When looking for a financial advisor, considering these three key principles - fiduciary standard, compensation and level of service - will help ensure a good fit.

1.Fiduciary standard. There is a real difference between a broker from a big Wall Street firm who is only held to a suitability standard, and a financial planner who acts as a fiduciary 100% of the time. A stockbroker can sell investments that are merely considered suitable or appropriate for you at the moment of recommendation, but those offered by a fiduciary need to be in your best interest at all times.

Now, anyone can call themselves a "financial planner", but that doesn't mean they always adhere to the fiduciary standard.

"Advisors actually aren't required to be fiduciary at all times. They may be fiduciary on certain accounts ... whereas when they're giving you advice around insurance, they may not have to act as a fiduciary, so that in itself is a conflict of interest," said Devon Klumb, financial planner and co-founder at RhineVest. "What people need to look for is someone who's fiduciary because their job is to make sure that their advice to you makes sense all the time, ongoing as your life changes."

The easiest way to find a fiduciary advisor is to look for a Certified Financial Planner or an Investment Advisor Representative, or IAR.

CFPs have completed rigorous training and adhere to a strict code of ethics including fiduciary duty. The easiest way to find one is to search on websites such as or, which feature CFP-only advisors. Another source is , the website of the National Association of Personal Financial Advisors, the nation's leading association of fee-only advisors, who renew a fiduciary oath every year.

An IAR is also held to the fiduciary standard. An IAR representative usually works for a Registered Investment Advisor, or RIA, firm. These investment management firms must register and make filings with the Securities and Exchange Commission and/or with state security regulators. They function under the Investment Advisers Act of 1940.

2. Compensation. It is important to understand whether you're dealing with a fee-only advisor or one that also collects commissions from the investments he or she recommends. When a commission is involved, chances are that the advice will be biased toward the highest-paying investment vehicles, which may not be in your best interest.

"When people ask a true financial planner 'What do you charge?', the answer should be very simple and clear and specific," says Jason Howell, CFP, president and fiduciary wealth advisor at Jason Howell Co. A fee-only, fiduciary advisor will be transparent with the fee structure he or she charges. The fastest way to screen for a fee-only advisor is through

3.Level Of Service. With the proliferation of robo-advisors, people have more choices today than ever before. Let machines do the thinking and calculation, as well as the buying and rebalancing of your portfolio. This option may be suitable for new investors who can either go to large firms such as Charles Schwab ( SCHW ) and Vanguard , or turn to specialized players such as Betterment , Personal Capital or FutureAdvisor .

The next level up is a one-time consultation or a periodic portfolio review. This could mean a free or flat-fee consultation, and subsequent pay-as-you-go meetings. You'll still be in charge of your portfolio, but the advisor will give you specific investment recommendations.

Many financial planners take a holistic approach. They will review all your assets and create a financial plan that is specifically tailored to your needs and wants. This is usually what a CFPs or other fiduciary will do when building a long-term relationship with their client.

Finally, portfolio management involves the full management of your investments and transactions, whereby you're paying a fee on the total assets under management. Often, this level of service starts at higher dollar amounts of assets, such as $200,000 or more.

IBD'S TAKE:Making money catching ETF uptrends requires knowledge about how to read charts. You can learn how at IBD University .

Other elements to consider when picking a financial advisor are whether he or she has the technological platform for data aggregation, planning and reporting. It's also always best to ask friends, people you trust or a respected organization for a referral. "Never work with someone who calls out of the blue and asks to meet with you," Klumb said.

And make sure you have rapport with the prospective advisor. "They should be patient enough to allow you to go through the process: meet a couple of other advisors and then come back and say that they were the right fit," he said.

Before securing the services of a professional, make sure you have your ducks in a row regarding your current financial situation. Having outstanding consumer debt such as credit cards, not having six to 12 months in emergency funds and not maxing out your retirement contributions at work may not make it worthwhile to go to a financial planner just yet, says Jill Schlesinger, Senior CFP Board Ambassador, CBS News Business Analyst and host of "Jill on Money" radio show.

"Generally speaking, many people are seeking advice before they accomplish the basic principles," she said. "Ask yourself the big question, do I know where my money goes? A financial advisor or a CFP will actually want that information."


How To Find An Advisor Who Focuses On ETFs

Can Tech Tools Help Millennials Avoid A Looming Retirement Crisis?

Money Managers Lure Millennials With Low Minimums, Live Advice

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.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.