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How do I find a financial advisor?

It can be daunting to find a financial advisor. How do you know whether they are any good? How do you find a financial advisor you can trust them? What does it cost to hire a financial advisor? Where do you even start looking for a financial advisor?

There is a basic process that you can go through to help you feel confident in your search for a financial advisor that will meet your needs and help you accomplish your financial goals. 

Determine the kind of financial advice you need or want

Looking at your particular situation can help you understand what needs you might have. Before you go looking for the perfect financial advisor, take stock in your financial situation. Which of the following apply to your financial situation?

  • Significant consumer debt
  • More than $50,000 in investable wealth
  • More than $500,000 in invested wealth
  • Need a clear retirement plan
  • Need to do estate planning
  • Have a complicated tax liability
  • Have emotionally or behaviorally dysfunctional relationship with money
  • Money causes interpersonal conflict with a spouse or significant other
  • Want to protect the wealth you have
  • Want to grow wealth

Understanding the needs you have before you search for and interview financial advisors is very helpful. There are other things that you might need, but is an idea of some of the things you ought to   

Align the type of advise you need with the credentials

Not all financial advisors are the same and not all people need the same kind of advice. You should be as clear as you can be about the kind of financial advice you would benefit from. Part of the issue is that you may not even be clear on what kinds of advice are available. Here are 9 examples of how particular needs might align with some professional designations and certifications. It’s ok if you align with more than one of these.

1) Significant debt

Do you have a significant amount of debt or are trying to reestablish good financial habits? If so, you are probably looking for a financial coach, Certified Financial Wellness Consultant, or Accredited Financial Counselor.

2) Damaged Credit

Are you struggling with damaged credit, significant debt, and need to improve your credit score so you can buy a house or qualify for lower cost forms of credit? If so, you might want a Certified Credit Counselor or an Accredited Financial Counselor. 

3) Beginning your career

Are you at the beginning of your career with little wealth but looking to get off on the right foot? If so, you might need a Certified Financial Planner. 

4) Saver with $50,000 to invest

Have you been able to amass more than $50,000 in investable assets and are saving regularly? If so, you might need a Certified Financial Planner.

5) Unsure about current wealth

Do you already have significant wealth but aren’t sure you are doing the right things with it? If so, you might need an Asset Protection Planner.

6) Need Life Insurance Advice

If you think you are looking for life insurance information but don’t want to just see a life insurance broker, you might want to talk with a Chartered Life Underwriter.

7) Need help managing wealth

If you are looking to have someone manage a wealth portfolio for you, you might want to speak with a Chartered Financial Professional.

8) Dysfunctional relationship with money

If you feel like you have a dysfunctional relationship with money that might stem from childhood trauma, you probably ought to seek out a financial therapist

9) Complicated tax situation

If you have complicated tax exposure, you might want to consult a Certified Public Accountant or a Certified Tax Advisor.

There are, of course, other specialty designations and even specializations within certifications. You can’t be expected to know all of them. However, understanding what you would like to get out of the relationship can help you ask the right questions of advisors you find. 

Identify a few different candidates 

Armed with a clearer idea of what you need and the kinds of professionals who might meet your needs, you can begin your search for specific advisors. At this stage, you need to ask yourself whether it is important that you meet with your financial advisor in person or whether you are okay with a virtual relationship.

So, how do you go about finding advisors that might meet the criteria you are looking for? The following are some ideas:

Use search engines

Search the Internet for advisors with the designations you are looking for. While there is nothing wrong with accepting people at the top of the search result, be aware that they may simply be advisors who pay to advertise. That isn’t inherently bad, but you don’t want to assume that they are the “top of the list” for other reasons. 

Visit chartering organizations websites

Most organizations that educate and certify financial advisors have a search function on their website where you can find an advisor with that designation. This can be incredibly helpful especially when you are specifically looking for a person with a rare or specialized designation. If you are unsure of the chartering organization for a specific designation, you can find a list at FINRA.org.

Ask for a referral

You can ask around to business colleagues, family, or friends about whether they have a financial advisor that they like. The nice thing about this approach is that you have the opportunity to ask what they like and dislike about working with them. If you contact an advisor who is currently not taking new clients, you can also ask them if there is a colleague that they would recommend you speak with. 

Use an online tool

The Yukon Project has a tool where you can answer 20-30 questions and, based on your answers, pair you with up to three possible financial advisors. You have no obligations to use them, but it gives you an opportunity to find an advisor based on your particular situation. You can find the tool here.

Check their credentials and any complaints

With a few potential financial advisors in hand, now you review the credentials that they have and even the history of where they have worked from the beginning of their career. The SEC’s Investment Adviser Public Disclosure website is where you can see the full history of an advisor’s registration. FINRA has a tool that will allow you to research the background and experience of financial brokers, advisers and firms.

You can also check to make sure that there aren’t any red flags. To be honest, you usually won’t find any. It is generally a well-regulated industry that is competitive enough that the rotten eggs get weeded out. For the most recent year that there is available data, FINRA reports that there are over 612,000 financial advisors registered with them. Of all those professionals, they had barred or suspended 655.

Still, it makes sense that you ought to check up and make sure that no complaints have been logged against any advisor you are considering. You can check FINRA’s database of disciplinary action here and the SEC database here

It also doesn’t hurt to do a little Googling to see if there are any online reviews. 

Interview them to find the right fit

When you interview a financial advisor to see whether they might be a good fit for what you need, it is important to realize what you are NOT trying to do. 

You are not trying to test them on their knowledge 

To earn their professional designation, they had to prove mastery over the complicated information in their field.

You are not trying to see how they might take advantage of you 

If they have a professional designation that must be registered with the SEC, they have a legal obligation to put your interests above their own. The fancy way of saying this is that they have a fiduciary responsibility to you as a client.

So, what ARE you trying to accomplish when you interview potential financial advisors? 

You want to see if you can work with them

First of all, you need to be comfortable enough with your financial advisor to be able to be honest about your situation. You will need to share details of your financial life that may be uncomfortable to share with others. Financial advisors are people with personalities just like everyone else. You want to make sure that you are comfortable with them.

You want to understand their expectations

It’s important to realize that financial advisors are partners in your financial progress, but they can only be successful with your cooperation. You want to find out what their expectations of you might be. If you are uncomfortable with their expectations to make the relationship successful, moving forward might only be frustrating for everyone. 

You want to understand their philosophies

For wealth managers, you will want to understand their investment philosophy. For financial planners, you will want to understand their money management approach. Do you need someone who will be flexible and adjust? Maybe you need someone who is firm and pressures you to stay on track? Do you want to deal with the ideals or with the messiness of reality? In short, you want to get a sense for their approach. This was you aren’t surprised by their decisions or recommendations a year from now. 

You want to understand compensation

There are different ways that financial advisors can be compensated. You will want to know how they charge for their time and services. There aren’t necessarily good and bad compensation models, but some models might not align with what you need done. For example, if you demand holding all your wealth in bonds and index funds, a compensation model of percent under management probably won’t be worth what you will have them do for you. 

Make sure you are clear about expectations

A financial advisor is interviewing you at the same time you are interviewing them. They will want to see if they can be successful working with you, as well. You can help in this process by making your expectations clear in this exploratory meeting. It is important to be clear about what you are expecting so you aren’t disappointed. 

The following could be things you make clear you expect from a financial advisor: 

  • Communication: How do you want to hear from them? How often do you expect to meet? 
  • Fiduciary responsibility: You want to make sure you know when the advisor is working in your best interest.
  • Proactive versus reactive: How much do you expect the advisor to anticipate your needs rather than react to your questions? 
  • Customized recommendations and plans: You should make clear that you are expecting advice, recommendations, and plans that are tailored to your situation, needs, and goals. You don’t want generic plans that aren’t relevant to your circumstances. 

The following could be things that your financial advisor will expect of you:

  • Listen to the advice: If you aren’t open to the advice of a financial advisor, you have to ask yourself if you really want an advisor at all. That isn’t to say that you have to follow every recommendation. It does mean that you should be willing to listen and consider the advice seriously. 
  • Face the situation even when the news isn’t ideal: Human beings can have the tendency to ignore bad or uncomfortable news. It’s so common that behavioral psychologists call it the ostrich effect.
  • You will understand the implications of a decision: Part of being an engaged client is that you will not take your decisions lightly. It is important that you accept the implications of the decisions that you will make. That might mean the need to ask follow-up questions, but you don’t want to be surprised by the consequences of a decisions taken lightly. 
  • You will be prompt: Being prompt doesn’t just mean showing up to the meetings on-time. It also means doing what you agree to do when you agree to do them. 
  • You will follow through on your decisions: Nothing can be more frustrating for a financial advisor than a client who dawdles on a task. It means unnecessary follow ups and missing out on deadline-constrained opportunities.

What questions should I ask a financial advisor before I sign with them?

When you sign with a financial advisor, you might be starting a relationship that can last a few months or even a few decades. It’s not enough to know that they are capable at their job. You need to know that you can work together and that you can have a constructive relationship that will mean talking about your finances, your needs, your goals, and times when your situation changes. 

When you are meeting with a financial advisor to see if there is a fit, here are some questions you could ask them:

Are you a fiduciary? Are there times when you are not acting as a fiduciary?

Fiduciary is a legal term that means that the person is obligated to put your interests above their own. Knowing whether the financial advisor is a fiduciary can give you a lot of confidence that their advice isn’t influenced by motivations that don’t benefit you. Asking the follow-up question of whether there are times or situations where they are not acting as a fiduciary is important because some financial advisors wear more than one hat.

How are you compensated?

This question can help you understand the nature of your working relationship. Their answer can give you confidence about the motivation for their recommendation and can help you understand how much the advice will cost you over the long run. 

If you earn money from commissions, do you disclose it on products you recommend?

If the financial advisor earns a commission, you want to know. Transparency can give you confidence that they are recommending a product because it is good for you. Not because there is a hidden profit motive lurking in the shadows. 

Do you accept referral fees?

Similar to the question of commissions, you will want to know if the advisor received a referral fee if they recommend you to a lawyer, accountant, or other service. Knowing whether they are referring a service because of its quality or because they earn a referral fee can help you know how to weigh the recommendation against other research that you might do. 

What are my all-in costs? What are all the fees that I could be charged?

No one likes to be surprised by fees, especially down the road. Knowing the kinds of fees that you might be charged can keep things from being unpleasant surprises down the line. 

Do you have other clients like me?

Asking a financial advisor whether they have any other clients like you can yield several powerful insights. It invites them to articulate what kind of client they think you are. This gives you a sense for whether you agree with their assessment of your situation. Also, it tells you whether they have been listening to you. It can also help you see whether they have experience in the services and advice that you will need.

How will our relationship work? What is my responsibility and what is yours?

If you are looking for a financial advisor for the first time, you may not know what to expect or how it will work. When you ask a financial advisor to explain their and your responsibilities, it gives them a chance to explain the ideal engagement. This gives them a chance to set expectations that can help you both be successful. 

What is your investment philosophy?

If you are interviewing a financial advisor that will invest your money or give investment advice, you would like to know up front how they think of investing. This helps you see whether they are going to be aligned with the way you want your money managed. 

Do you hold the funds or do you use a custodian?

When a financial advisor holds funds, it means they have direct control over your investments. If the advisor is not properly managing your investments, there is a risk that your money could be lost or misused. When a financial advisor uses a custodian, it means that your investments are held and managed by a third-party institution. This can provide greater transparency and protection for your investments, because the custodian has a legal obligation to act in your best interests. Additionally, if something were to happen to your advisor or their firm, your investments would still be protected under the custody of the third-party institution.

Overall, asking about a financial advisor’s use of a custodian can give you a better understanding of how your investments are being managed and protected. It can also help you make more informed decisions about who to trust with your money.

How much does a financial advisor cost? How are financial advisors paid?

A financial advisor can earn their income in essentially four different ways:

Commission 

Some financial planners may receive commissions from the products they recommend, such as mutual funds or insurance policies. Whenever possible you will want to know when your financial advisor stands to earn a commission as it might affect how you judge the value of their recommendation. Fewer and fewer financial advisors are earning money from commissions because of the potential conflict of interest. 

Flat fee 

You can often hire a financial advisor to put accomplish a discrete project for you, for instance a financial plan, retirement plan, or estate planning. The financial advisor would tell you upfront what the engagement would cost. The cost of the plan will depend on the complexity of the project, but you can expect an engagement to be more than $2,000. 

Per hour charge

If you want an on-going relationship with a financial advisor which will allow you to tap their expertise as things come up, you might consider a financial advisor who charges by the hour. This might be the best option for you if you don’t have many assets to manage, but feel like you need someone you can trust to give you advice when questions come up. You can expect to pay between $180 to $300 per hour. 

Charging a percentage of assets that the management

For advisors who are managing your investment portfolio, it is common for them to charge you a percentage of the assets under their management. The advantage to this approach is that you never receive a bill. It also allows you to ask questions without the fear of the time clock. The disadvantage is that you can feel like the advisor fee is siphoning off money regardless of whether the stock market is up or down. The percent fee usually is tied to the amount of money under management. You can expect to pay between 0.75% and 1.5%. 

Should my financial advisor be able to beat the stock market?

Studies have shown that most financial advisors don’t beat index funds over the long run. So, if they aren’t going to beat the market, why would you want a financial advisor? Well, if you are looking at your financial advisor as nothing more than a stock-picking wizard, you are probably not getting as much out of them as you could. A good financial advisor does more than buy stocks and bonds.

A good financial advisor might provide insights on how to:

  • minimize your tax liability,
  • protect your assets through estate planning,
  • shift your risk exposure as you get closer to retirement,
  • answer personal finance questions that come up,
  • advise you on non-traditional investments,
  • help you understand the short-term and long-term implications of a decision,
  • and much more. 

How much money should you have before you see a financial advisor?

Whether you have enough money saved up before you see a financial advisor depends on the kind of financial advisor you are looking for. The question implies that you are looking for a wealth manager or an investment advisor. You really need between $50,000 and $500,000 before working with an investment advisor becomes worthwhile. 

But an investment advisor is not the only type of financial advisor that you might benefit from. If you have a lot of consumer debt and no assets, you could still benefit from the advice of an Accredited Financial Counselor. When your career is taking off but you haven’t yet accumulated many assets, you may want to speak with a Certified Financial Planner to help you set up budgets, investment planning, insurance protection, and other foundational elements to your financial life before you get too far along. If you have a personal business and would like to feel more confident that your financial affairs are being managed optimally, you might want to secure the assistance of a Certified Public Accountant

Is it worth it to see a financial advisor even if I don’t have much money?

There are several reasons why you might want to see a financial advisor even if you don’t have much money:

To establish financial goals

A financial advisor can help you identify your short-term and long-term financial goals. This includes things such as paying off debt, saving for retirement, planning for children’s education, or buying a home. They can then help you create a plan to achieve those goals, even if you have limited resources.

To create a budget

A financial advisor can help you create a budget that aligns with your financial goals and helps you manage your money effectively. They can also provide guidance on how to reduce expenses and increase your savings. They can give you ideas about how to reach your goals that you might not yet be aware of. 

To get on the right track

Even if you feel like you’re behind financially, a financial advisor can help you get on the right track. They can help you develop a plan to pay off debt, increase your savings, and make informed investment decisions.

To avoid costly mistakes

Making financial mistakes can be costly, especially if you don’t have much money to spare. A financial advisor can help you avoid common mistakes, such as overspending, taking on too much debt, or investing in high-risk investments. They can even advise you on benefits packages from your employment, like 401k or IRA contributions and life insurance.

To learn about financial planning

Working with a financial advisor can be a valuable learning experience, even if you don’t have much money. They can teach you about financial planning concepts and strategies, such as asset allocation, diversification, and tax planning. All of which can help you make better financial decisions in the future.

Overall, even if you don’t have much money, a financial advisor can help you establish financial goals, create a budget, avoid costly mistakes, and learn about financial planning. They can provide valuable guidance and support as you work toward achieving your financial goals.

What is an engagement letter from a financial advisor?

An engagement letter from a financial advisor sets the scope of what they will do and the kind of advice that they will give. Engagement letters are important between financial advisors and their clients because it is important that you are both clear on what the expectations are. It should be very clear from the outset what kind of advice the financial advisor will give. One of the reasons engagement letters are important is because providing financial advice is regulated by the government. It is important that financial advisors are clear about where their expertise is.

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Jonathan Walker