How to Find a Financial Advisor/Planner

'Do I need a financial advisor or financial planner?'

If it's ever occurred to you how complex and vital 'getting it right' is when it comes to saving, investing, maximizing the value of your wealth and planning for a safe, comfortable retirement, you've probably asked yourself that question.

Similarly, if you've felt the pressure of deciding on a big investment, such as a home or education – or felt overwhelmed with the financial details after a wedding,nthe birth of a child, divorce, death of a spouse or major illness – you've probably wondered about finding someone to advise you.

But according to at least one survey, over a third of Americans don't have a good understanding of what a financial advisor actually does. That figure balloons to 46% for Millennials.

So what kind of services do financial advisors and planners provide? Broadly, they can help you manage your financial life using a variety of strategies and products to both manage your wealth and improve your financial habits. That's the short, easy answer; you'll have to read on for more detail.

Not all financial advisors are the same: Some specialize in certain practice areas, types of clients, strategies and products. Some work with clients all over the country; others just focus on clients their own town. Some can help you with your taxes or estate planning; others will simply focus on retirement planning. Some focus on younger client; some just on retirees. Some even focus only on widows. As you can see, there's probably an advisor out there who fits your needs perfectly.

You may need an advisor for many reasons. For example, perhaps you just received a considerable sum of money from a relative who died. Perhaps you just had a baby and want to ensure his or her future in case the worst happened. Perhaps your company is offering a too-good-to-resist early-retirement package, and you want to make sure the money lasts. Any of these events (and many others) could naturally trigger the desire for some professional help in managing your financial affairs. 

How should you go about finding the right advisor? The first step is to figure out what sort of professional help you need. Like many people, some of your deepest financial thinking comes at tax time. So if you just want someone to dole out tax advice and preparation, a good old certified public accountant (CPA) will probably suffice. That CPA may or may not also be a financial advisor.

But say you're looking for help in creating a savings plan, devising investment strategies for your investment portfolio, helping you get out of debt and start saving for a house. In short, if you want someone to look at your entire situation, you should seek the help of a comprehensive financial planning firm or an individual financial planner. Firms typically have a staff of professionals that includes an insurance agent, tax professional, estate planner and financial advisor. Solo-practitioner financial advisors or planners may not be able to provide you with the full range of services that a firm can, but many leverage technology, such as automated investment platforms or robo-advisors, to help with financial planning, asset allocation, risk management, saving and more.

To locate an advisor, start with referrals from colleagues, friends or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. A Certified Public Accountant (CPA)  or a lawyer might make a referral. Professional associations can sometimes provide help. These include the Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).

Unfortunately for the general public, the education standards for financial advisors are very minimal. Anyone can call him or herself a financial analyst, financial advisor, financial planner, financial consultant, investment consultant or wealth manager, warns the Financial Industry Regulatory Authority (FINRA). In fact, an individual could drop out of high school, rent some office space, pass a FINRA general securities exam and be selling stocks – all within a couple of weeks. While exams such as the Series 6, 7 and 63 satisfy the industry regulatory requirements, they do not offer the advisor experience when it comes to real-life situations.

The financial industry is also rife with professional designations, many of which can be obtained with little or no effort. However, it does have three leading certifications that have significant educational and ethical requirements:

• A Chartered Financial Analyst (CFA) has a wide range of expertise in securities, financial analysis, investing, portfolio management and banking. The testing regimen for this certification is long and rigorous.
• A Certified Financial Planner (CFP) must hold a bachelor’s degree and must have completed “a college-level program of study in personal financial planning, or an accepted equivalent.” In addition, a CFP has booked at least three years of industry experience and passed a series of comprehensive tests, abides by a code of ethics, and meets continuing-education requirements. You can check the CFP Board’s website to verify that your advisor or financial planner belongs to this group.
• A Chartered Financial Consultant (ChFC) holds a certificate that uses the same core curriculum as the CFP but does not require a comprehensive board exam and does not require that he or she abide by a code of ethics.

The latter two are often considered best for creating a general financial plan. If you are looking for someone with more of a retirement focus you may want to seek out a Chartered Retirement Planning Counselor (CRPC), who has completed intensive training in retirement planning through the College for Financial Planning. If your concerns are dominated by taxes, try a Personal Financial Specialist (PFS) who is a CPA but has also undergone additional education and testing, thereby offering more expert financial planning qualifications. For insurance and estate-planning matters, you might want an advisor who has attained mastery as a Chartered Life Underwriter (CLU).

Although most of the big retail brokerages offer financial planning services, be cautious with their personnel. While many are highly trained and can be trusted, others may just be glorified stockbrokers hired by large wire houses to sell proprietary mutual funds and stocks. They are incentivized, sometimes even required, to push these products, which are owned by their firm – and for which they receive top commissions. And with some wire houses, it's all about quantity, not quality: The more buying and selling that a broker does in an investor's account, the higher his commission payouts.

If you're looking for someone who will make you feel secure, it may be wise to hire a registered investment advisor (RIA) or Investment Advisor Representative (IAR). They are held to a higher degree of accountability than most brokers, and you'll typically find them the most knowledgeable. They are also required to provide to all potential investors upon request a Form ADV Part II, a uniform submission used by advisors to register with state regulators and the Securities and Exchange Commission (SEC). This is your opportunity to learn about your advisor, so make sure you use it. Among other things, this will allow you to determine whether your advisor has ever applied for personal bankruptcy ("Do as I say, not as I do" is not exactly the sort of philosophy you want in a financial manager).

You can check for any regulatory blemishes on the advisor’s record at FINRA’s broker check site. One thing to keep in mind, however, is that an isolated complaint or infraction does not necessarily mean that the planner is dishonest or incompetent. Any charge brought against a broker or planner will go on the person's record, regardless of whether the planner is in the right. But if the record shows a long-term pattern of violations, customer complaints or charges of a serious nature, then you should probably find someone else.

Whatever sort of services you need, make sure that advisor is held to fiduciary standards, which charges him or her with the responsibility of acting in the best interests of an investor. In the investment world, RIAs are required to abide by a fiduciary standard; stockbrokers generally just have to abide by the less-rigorous suitability standard (though the Department of Labor's new Fiduciary Rule, partially phased in on June 9, 2017, greatly expands the types of professionals who are expected to comply with fiduciary standards; see DOL Fiduciary Rule: Everything You Need to Know). Registered investment advisors are either registered with their state of residence or the SEC; they are regulated under the Investment Advisors Act of 1940. If you can find an independent RIA, you also won't have to worry about paying high commissions on proprietary products.

Once you've identified a firm or individual to work with, make sure you understand all of the services that are available.  At a minimum, consider the following:

1. Will it track your investment cost basis for you?
2. Can it file your tax return and help you with other tax related questions?
3. Does it look at insurance products (i.e. life insurance, long-term care, annuities, etc…)?
4. Can it help you plan your estate?
5. Will it refer you to another professional if the firm cannot provide the service itself?
6. Is there a succession plan, in case something happens to your advisor?

It's also good to ascertain if your situation is typical of the advisor’s client base. For example, if you are a corporate employee looking for help planning for the exercise of your stock options, you should ask the advisor about their knowledge and experience in dealing with clients like you. A financial advisor who deals primarily with clients at or nearing retirement might not be a good choice for you if you are a 30-year-old professional looking for a financial plan.

It’s also important for clients and prospective clients to understand how their financial advisor communicates with clients and the frequency of those communications. How often will you meet to review your portfolio and your overall situation? Quarterly, semiannually, annually or as needed? Will these meetings be done in person or perhaps over the phone or via a service like Skype? It's becoming more and more common for clients to work with their financial advisor remotely.

Additionally, does the advisor typically communicate by phone, email, or perhaps text message? Any or all are fine, and both your preferences and the advisor’s may be based on your age and digital comfort level.

There is one more key question to ask an advisor: How are you getting paid?

Compensation generally falls one of two categories: fee-based and commission based.

A fee-based structure can be hourly, project, retainer or a flat ongoing amount that is derived from the percentage of assets being managed; usually, the greater the assets, the lower the percentage. Commission-based means the advisor charges a straight commission every time a transaction occurs or a financial product is purchased. 

Fee advisors claim that their advice is superior because it has no conflict of interest. Commission-based compensation, they argue, can compromise an advisor's integrity, affecting the selection or recommendation of products (some companies might compensate the advisor better than others). In return, commission advisors respond that those who get paid based on their assets under management (AUM) are more likely to recommend financial strategies that increase their AUM, even if they aren’t in your best interest, and that commissions keep their services affordable (though the costs of these commissions are born by you the investor and serve to reduce your returns).

Each year, more investors are shifting from the traditional commission setup and moving towards the modern fee-only approach. Because set fees are new to many investors, some common questions have risen, such as: "What is a fair fee?" and, "How will I be billed?" With the average mutual fund still charging an expense fee of approximately 1.4%, it's safe to say that a total fee of 1.8% to 2% is fair. If you can find an advisor who can package an investment program that includes the cost of the investments, trading, custody and the advisor's professional services for 1.8% or less, you're getting a sweet deal. Most fees are now billed quarterly, so you'll need to know whether they will be pulled in advance or in arrears.

A combination of payment methods may also occur. Before you sign on to work with an advisor, you should make sure that the rates, fee structure and commission schedule are clearly laid out (preferably in writing, as RIAs are required to do by law) so there are no surprises later.

Good financial advisors are compared to "life coaches" because they can help you with many of your complex financial decisions throughout your life. A financial advisor can offer tips on buying a car, saving for college and refinancing your home mortgage, just to name a few. They deal with other financial professionals on a daily basis, and they typically know if you're paying too much for something or not getting a competitive rate.

Great financial advisors will not only help you make money on your investments, but will also help you reach your goals and save money on insurance and other major decisions throughout your lifetime. To maximize your experience with your advisor, you should meet with the person regularly, share your concerns and goals, and allow your advisor to review all of your financial and legal documents.

If your advisor only records some transactions from time to time, but never sits down and discusses long-term goals or a financial plan with you, you may want to look for a new advisor. Similarly, if your advisor never writes an investment plan to lay out your goals and assess whether they are being reached, you may be better served elsewhere. Remember: These folks work for you – not the other way around.