Deciding to get financial planning help is a wise decision, but learning how to find a financial advisor you can trust—one that’s right for your situation—can often be more complicated than we would like.
Part of the reason for this is that financial advisors come in different flavors. The term “financial advisor” is loosely thrown around and used by many in the financial industry—from insurance brokers to stockbrokers and everything in between.
Really, almost anyone can call themselves a financial advisor.
I am going to show you exactly what you need to know—and do—in order to find the best financial advisor for your individual retirement situation. Not just any financial advisor, but one that acts in your best interests and doesn’t try to sell you products. One who earns your trust respect through professionalism, educational achievements, professional certifications, and experience.
Most investors make the mistake of focusing solely on investment returns. Please don’t make that mistake!
Of course, investment returns are important. They are after all a tool to execute your retirement plan. But you also need to maximize social security benefits, minimize taxes, reduce and control debt . . . all while squeezing every last dime out of your finances!
The best financial outcomes require a holistic retirement plan to make sure you are doing everything you can in the areas of tax, investing, debt and credit, insurance, estate, and most importantly retirement planning.
Take your time, do your homework, and interview any potential financial advisor prior to paying or hiring them. You should feel comfortable with the advisor because you are going to be entrusting your financial future to that person, it’s a relationship that’s second only to your immediate family and good friends!
Start with a shortlist of potential candidates, learn about them and their compensation model, interview each one, and use the various tools provided by national financial planning organizations to reach a decision.
Let’s look at the 5 steps you can take to find and hire a great financial advisor.
1. Find a fiduciary financial advisor and get it in writing!
The financial industry is always eager to give you advice, but the people giving that advice may have different intentions and incentives.
By definition, a fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person.
More deeply stated, a fiduciary must put your interests above their own. They have a “fiduciary responsibility” to help ensure you achieve the best financial results possible regardless of their own compensation or personal interests.
Almost anyone can technically call themselves a “financial advisor” or “financial planner”, but there are generally two types:
- A true fiduciary financial advisor, and
- A salesperson using a wide arrange of professional titles such as investment broker or wealth advisor.
Fiduciary financial advisors have a legal and ethical responsibility to act in your best interests and adhere to the fiduciary standard. An investment broker only has to adhere to the suitability standard. These two regulatory standards can make a big difference in the financial advice that you receive.
So how do you know that the financial advice you are receiving really is the best for you?
Your best bet for receiving trustworthy advice is to go with a financial advisor that adheres to the fiduciary standard, which ensures that:
- The needs of the client are prioritized over the needs of the firm/financial advisor
- Financial decisions are in the client’s best interest
- Any conflicts of interest are fully disclosed
The fiduciary standard is the gold standard in the financial advising world. The suitability standard requires that financial advice needs only be “suitable” to the client’s needs.
There are key differences between the suitability and fiduciary standards. Education, professional requirements, and compensation models between fiduciary advisors and non-fiduciary sales agents can differ widely.
It’s important to understand that some professionals often function in both roles, so it’s critical to know which role they are playing when talking to you. They may act as a fiduciary financial advisor when planning your retirement, then be held only to a suitability standard when selling you insurance or investments.
The problem with the “suitability standard” is almost any financial product could be construed as being “suitable” to achieving some financial objective. It may not, however, be in your best interests.
Moreover, comprehensive financial planning is much more complex than just selling an insurance or investment product.
When you find a fiduciary financial advisor, they’ll help you build a holistic and comprehensive financial or retirement plan. Investment brokers typically want to sell insurance and investments products, from which they receive a commission.
So ask yourself, if you were sick would you rather go to an independent doctor who can assess, diagnose, and treat your condition? Or go to one sponsored by some big pharma company who is monetarily incentivized to prescribe their latest drugs?
Of course, this doesn’t mean that an insurance agent or stockbroker held to the suitability standard intentionally wants to damage your financial future or is inherently a bad person. It just makes it more likely they’ll act in their own interests over yours.
My advisor says he/she is a fiduciary, how can I be sure?
In addition to giving you their word, one way that an advisor can demonstrate their fiduciary responsibility to you is to put it in writing. They can also give you their signed fiduciary oath or a copy of their relevant fiduciary certification.
If a financial advisor refuses to give this to you in writing, promptly end that relationship and start looking for a new financial advisor!
Having the following designations also means that the advisor is a fiduciary:
- CEFEX Fiduciary Advisor Certification
- Accredited Investment Fiduciary (AIF)
- Independent Registered Investment Advisor (RIA) not working under a broker contract
If you’ve ever listened to—or read any of—Tony Robin’s material on financial planning, you’ll know that he is a huge proponent of only using fiduciary financial advisors.
Unfortunately, according to Robbins, only about 10% of financial advisors are fiduciaries. Of those 10%, many function as both a fiduciary and a broker depending on the scope of your relationship with them. The problem is most investing consumers can’t tell the difference!
Don’t leave it to the financial advisor to tell you, ask them directly if they are dually registered as a registered investment advisor (RIA) AND with a broker-dealer. Regardless if they’re an RIA, any financial advisor registered with a broker-dealer is likely not working as a true fiduciary financial advisor because they need that broker-dealer arrangement to receive commissions from product sales.
Also, ask what type of relationship you would have when working with them. You can also look at their business cards or marketing material—if it says in small print something like “securities offered through ABC company” they are not a fee-only fiduciary financial advisor.
The CEFEX Fiduciary Advisor Certification is the gold standard for fiduciary excellence. In order to earn this certification, firms have to go through a rigorous evaluation process in which CEFEX representatives thoroughly evaluate the practices and policies of advisors.
A CEFEX certified advisor has met a “Global Fiduciary Standard of Excellence”, and is deemed to have practices that act in the best interest of the client and is therefore in a position to earn the public’s trust. A CEFEX certification is not easy an easy one to get, only 200 firms worldwide can boast such an accomplishment.
2. How do financial advisors get paid? ASK THEM!
Many people wonder “how do financial advisors get paid?” Put simply, there are three basic compensation models for financial advisors:
How your financial advisor is paid is likely to have a big impact on the financial advice they give you. Investment brokers working under the suitability standard don’t have to meet the much more rigorous ethical and legal fiduciary standard. As such, they may feel pressured to sell the investments and insurance products offered by their employer (proprietary products).
Commission-based brokers get paid a chunk of money to sell an insurance or investment product. Oftentimes they get “trails” as well – or small commissions ongoing.
Fee-based compensation is a slick way of saying the financial advisor makes money from charging fees and commissions. As I mentioned, some fiduciary financial advisors may also be brokers and some of the products may have a place in some people’s overall plan. However, it’s essential that you know if they are acting as a broker or not when they’re giving you financial advice.
By far, the best option is to find a fee-only financial advisor. When working with a fee-only fiduciary financial advisor you may pay a flat hourly fee, a project-based fee, an annual fee, or a percentage from the investment assets the financial advisor manages for you.
Fee-only advisor compensation effectively mitigates conflicts of interest, and is best for both the financial advisor and the client. Under this compensation model, the advisor acts as a fiduciary and the advice isn’t motivated by a desire to make more sales for commissions.
In fact, the fee-only model is supported by several national financial planning organizations whose members must exclusively use a fee-only agreement with clients and adhere to the fiduciary standard of excellence.
“Here’s what I tell Investors who ask for my most significant advice: Never do business with a broker.”Renown author, investor, and advisor Dan Solin
Although a good financial advisor does much more than only look at investments, the advice holds steady for other financial planning aspects as well. The bottom line is that commission-based compensation—as well as fee-based compensation—creates a larger bias in financial advice.
3. Ask about their financial credentials, education & experience
As you start learning about different financial advisors and how they work, pay special attention to their education, credentials, skills, and competency.
Look for the CFP® initials first, meaning CERTIFIED FINANCIAL PLANNER™. The CFP® certification is only granted to those who have a bachelor’s degree, have completed thousands of hours of applicable financial experience (such as through an internship, as a volunteer, or a job), and of course have passed the comprehensive, 6-hour CFP® exam after roughly 2 years of study. It’s an important accomplishment and a standard certification any great financial advisor should possess.
Additional credentials that add to an advisor’s skillset are:
CPA – Certified Public Accountants help individuals and companies with financial planning, investments, and taxes. On the financial advisor side is the PFS designation through AICPA. This is roughly equivalent to the CFP® designation.
CFA – Certified Financial Analysts have extensive knowledge in accounting, economics, asset management, and security analysis.
ChFC – Chartered Financial Consultants have experience and knowledge in financial planning, including income tax, insurance, investment, and estate planning.
CLU – A Chartered Life Underwriter helps people understand life and health insurance, pension planning, insurance law, income taxation, investments, financial and estate planning, as well as group benefits.
There are several other financial credentials that exist, so many it’s incredibly confusing to the investing public!
When researching potential advisors, take the time to understand what their credentials mean and, more importantly, if the skillset meets your individual needs. As such, it’s good to know what your goals are with financial planning so that you can find an advisor working in those specialty areas.
Honestly, most of the financial designations are quite simple to achieve in many ways, and therefore not worth as much as the CFP® and PFS designations. Those two designations are the premier designations for financial advisors at the top of their game!
Financial Advisor Specialty Areas
Once you find an advisor with the right credentials for your specific financial planning needs, it’s also important to drill down a bit further into their specialty or expertise.
While some financial advisors are general in nature, others focus on a specific niche clientele:
- Retirement planning
- Education planning
- Cash flow management
- Tax planning
- Insurance planning
- Risk management
- Investment planning
- Business succession planning
- Estate planning
And even more niche would be specialty areas like:
- Divorce financial advisor
- Financial advisors for a dentist
- Financial advisors for “XYZ company” (company-specific advice)
- Financial advisors for the LGBTQ community
- And many more!
If you’re not completely sure which specialty will meet your needs, think about where you are in life. Your particular life stage, whether it be as a young professional, a recently married person, having kids, well-established in your career with kids nearing college, nearing retirement or retired, calls for different strategies and plans for a healthy financial future.
A competent financial advisor is one that can successfully and efficiently meet the planning and investment needs of the client. Competency is gained through continuing education, training, and most importantly real-life experience.
A long list of credentials after a person’s name doesn’t automatically grant that person competency. When you start interviewing potential advisors, you can ask about their experience, the number of clients they advise, and what their typical client profiles are like. You should also perform a broker check to see if there are any complaints or actions against a particular advisor or firm.
Education, experience, and competency are what set true financial advisors apart from “just” a broker; one gives advice, develops a plan, and educates—the other sells an insurance or investment product. This is why it’s so important that you thoroughly research potential financial advisors.
4. How to find a financial advisor then make an interview “short-list”
So, where can you find these well-educated, competent, fee-only fiduciary financial advisors who specialize in the planning needs for your situation?
Learning about fiduciary vs. suitability, how financial advisors get paid, and financial advisor credentials and specialties is the hard part. Learning where to find the right financial advisor you can trust is actually the easy part.
Rule number one is don’t use the phonebook or Google and do a search for “financial advisors in my city”. You’ll get results that won’t fit your new financial advisor requirements and waste a lot of time.
If you do use Google, make sure to search “fee-only fiduciary financial advisor in my city.” That way the cream of the crop financial advisors who should be on your short-list will appear at the top.
Consider using the tools offered by the national organizations whose members meet those exact criteria we discussed above:
- The National Association of Personal Financial Advisors
- The Garrett Planning Network
- The Centre For Fiduciary Excellence
- The Fee-Only Network
Those online tools can help you find financial advisors in your area that have been evaluated and meet stringent criteria—generally speaking, the same criteria I’ve laid out in this article.
Remember, you don’t have to be limited by geography. After your financial plan is well underway, you’ll typically meet in person only twice a year and oftentimes virtually! So don’t be afraid to drive across town to meet your financial advisor . . . If you had heart issues you’d drive across town to meet a specialist heart surgeon after all, wouldn’t you?
Beyond the use of online “find a financial advisor” search tools, ask your family, friends, and coworkers if they know any great financial advisors. Make sure to emphasize you’re only looking for—and interviewing— a fee-only fiduciary financial advisor!
Positive word-of-mouth references are worth investigating, however, the criteria set above is more important. Just use the same investigative and interview process for every single potential advisor so that you know you are truly getting a great candidate.
5. Financial advisor interview questions
Now that you’ve made a list of candidates that you may want to hire, it’s time to interview them.
The initial interview with potential advisors should be a welcoming, well-received, and positive experience. If it’s not, that is a good sign that the relationship probably isn’t going to work out. It is very important that you can develop a trusting and working relationship with your advisor, so take your time.
When it comes to financial advisor interview questions, it’s best to start with the resources from the professional associations above. They’ve already weeded out the riff-raff through a similar process.
Use the NAPFA advisor diagnostic as well as the advisor comparison tools to help you in the interview process. The advisors can fill these forms out and return them to you ahead of time, but generally speaking, it’s best you ask these questions in person to get a real feel for the sincerity of their answers.
The financial advisor interview is when all of these important steps come together. You will find out if your potential financial advisor is a fiduciary or not, and you will learn about their services, education, experience and specialty, and potential conflicts of interest.
Keep in mind that not every conflict of interest should lead you to automatically dismiss a candidate!
Make sure there is ample documentation as to the exact type of compensation to be received by the advisor and don’t just use the responses provided on the interview form. Asking how a financial advisor is paid is critical to your selection process! Remember, a fee-only fiduciary financial advisor will have the least conflicts of interest (if any)!
Choose the financial advisor that meets all of the important elements discussed above, has the experience and education that matches your needs, and feels like the right fit in terms of potential for building a long-lasting, trustworthy relationship.
It’s important you have a good connection with them. Even if they’re highly qualified, you want to feel comfortable. You are “opening up the financials” to a stranger, after all, so make sure you get a “warm and fuzzy” feeling before that final decision.
Finding the right financial advisor isn’t easy, but it will pay dividends in the future!
Spending the time researching financial advisors and learning the differences between fiduciaries and brokers, the different compensation models, the different areas of specialty, education and credentials, and finally interviewing financial advisors from your shortlist is very important! Yes, it takes time and effort, but it’s such an important step to take in protecting and growing your financial future it’s worth the investment up front.
Remember these key things when finding a financial advisor:
- Be patient, do your homework, and ask lots of questions
- Know who you are working with (a fiduciary or a broker?) and get it in writing (some advisors claim to be a fiduciary but won’t put it in writing)
- Know exactly how your financial advisor gets paid and get the compensation agreement in writing
- Use fee-only advisors, steer clear of fee-based and commission advisors
- Understand what your needs are so that you can find the right financial advisor with experience helping similar clients solve their financial problems
- The internet is full of useful tools, take advantage of the ones listed in this article specifically
- Don’t solely focus on investment returns—financial advisors can spin investment returns anyway they want to make them look great (when in reality they may not be so great)
- Remember it’s vital to build a strong, trusting relationship, so make sure you get that “warm and fuzzy” feeling when you interview a financial advisor
The journey to a better financial future is best made with a reliable partner that acts in your best interest and always has your needs in mind. If I can help you reach your goals or answer any questions, please reach out!