Finding a Financial Advisor or Planner

Getting Your Financials Right

You may have noticed how complex and important saving, investing, maximizing the value of your wealth, and planning for a safe, comfortable retirement can be. If so, you've probably asked yourself how to find a financial planner or advisor and why you might need one.

You may also have felt the pressure of making a big financial decision. Whether it is buying a home, investing in further education, or managing the finances for a wedding, birth of a child, divorce, death of a spouse, or major illness, you've probably wondered how a financial advisor could help.

Services of Advisors and Planners

The National Association of Financial Planners estimates that only 30% of investors have a paid financial advisor. 57% of those without an advisor say they prefer to manage their own money, while 95% with an advisor say they believe the advisor is worth the money.

So what kind of services do financial advisors and planners provide? Broadly, they can help you manage your financial life using various strategies and products to manage your wealth and improve your financial habits.

Types of Financial Advice

Not all financial advisors are the same. Some specialize in certain practice areas, types of clients, income levels, investment strategies, and products. Some work with clients all over the country, while others focus on clients in their towns. Some can help you with your taxes, insurance needs, or estate planning; others will focus on retirement planning. There are advisors for younger clients, and some specialize in retirees. You can find a planner to help with life stages planning, estate distribution strategies, and business planning.

From managing every aspect of your personal or business financial life to simply suggesting directions, specialized professionals are available to help.

Reasons to Seek Financial Advice

You may need a good financial advisor for many reasons. For example, perhaps you just received a considerable sum of money from a relative who died or a windfall from the state lottery. As a person goes through different stages in life, their need for a financial professional will change.

Perhaps you just had a baby and want to ensure their future in case the worst happens. Many parents seek help for college savings for children and setting up estates that can convey wealth to future generations.

The approach to investing at or during retirement is different than that of a young worker. As you near retirement, your risk tolerance level will change, and your investing style should change as well. 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 to Find Good Financial Help

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

Investment Management: Financial Planners

Financial planners are professionals who help businesses and individuals create investment plans that meet long-term goals.

Say you're looking for help in creating a savings plan, devising investment strategies for your investment portfolio, getting 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 a financial planner. Solo-practitioner planners may not be able to provide you with the full range of services that a firm can, but many will work hand-in-hand with other professionals who can provide those services.

Examples of Designations for Financial Planners

Financial planners can carry designations such as:

• Certified Financial Planner (CFP®)
• Chartered Financial Analyst (CFA®)
• Certified Fund Specialist (CFS)
• Chartered Financial Consultant (ChFC)
• Certified Investment Management Analyst (CIMA)
• There are many other designations as well

Each of the specific designations will require a different set of experience requirements and the successful completion of an exam or series of tests.

To locate a planner, start with referrals from colleagues, friends, or family members who seem to be managing their finances successfully. Another avenue is professional recommendations. An accountant or a lawyer might make a referral. Professional associations can sometimes provide help.

Managing Money: Financial Advisors

A financial advisor is a broad term that covers many types of professionals. They may help you manage your investments by facilitating the buying and selling of securities. These individuals include bankers, accountants, stockbrokers, insurance agents, and estate planners. Financial advisors handle a wide range of money matters for individuals and businesses, while financial planner handles more specialized matters.

Financial advisors may work in independent practices or as part of a firm or financial institution. All advisors who work with the public must have a current Series 65 License. The National Association of Personal Financial Advisors (NAPFA) is a good place to start your search for help.

Fee-Only vs. Fee-Based

A fee-based structure can be hourly, project, retainer, or a flat ongoing amount derived from the percentage of assets being managed, and 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.

Commission Based

Although most of the big retail brokerages offer financial planning services, be cautious with their personnel. While many are highly trained and trusted, others may just be glorified stockbrokers hired by large wirehouses to sell proprietary mutual funds and stocks. Known as fee-based, they are incentivized, sometimes even required, to push these products, which are owned by their firm—and for which they receive top commissions. With some wirehouses, it's all about quantity, not quality.

But be aware: the more buying and selling a broker does in an investor's account, the higher the commissions generated.

Fee-Only

Another type of advisor is the fee-only advisor. These professionals carry designations such as registered investment advisor (RIA) or investment advisor representative (IAR). They are held to a high degree of accountability, and you'll typically find them among the more knowledgeable in their field. They are also required to provide to all potential investors upon request a Form ADV Part II. This form is a uniform submission used by advisors to register with state regulators and the Securities and Exchange Commission (SEC).

Form ADV Part II—which must be completed each year—contains information about the individual. Among other things, this will allow you to determine whether your advisor has ever applied for personal bankruptcy and their investment in other financial institutions. The form identifies the individual's investment style, officers of the firm, and the firm's assets under management (AUM).

The Debate Between the Two Structures

Fee advisors claim that their advice is superior because it has no conflict of interest. Commission-based professional fees have greater potential to compromise an advisor's integrity by affecting the selection or recommendation of products. For example, some companies might compensate the advisor better than others.

In return, commission advisors respond that those who get paid based on their AUM are more likely to recommend financial strategies that increase their AUM, even if they aren't in the client's best interest. They argue that commissions keep their services affordable (though the costs of these commissions are born by you, the investor, and serve to reduce your returns).

More investors are shifting from the traditional commission setup and moving towards the modern fee-only approach each year. Because set fees are new to many investors, some common questions have arisen, such as:

• "Based on the level of service I am seeking, what is a fair fee?"
• "Why am I being charged more with one advisor than another?"
• "What investment advantage can one advisor provide other another?"
  

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

Evaluating the Professional

Anyone can call themselves a financial advisor (with an "O"), but a financial adviser (with an "E") is a regulated investment professional. 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 regarding 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:

1. 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.
2. A Certified Financial Planner (CFP) must hold a bachelor’s degree and 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.
3. A Chartered Financial Consultant (ChFC) holds a certificate that uses the same core curriculum as the CFP. However, the CFC does not require a comprehensive board exam and does not require certificate holders to abide by a code of ethics.

Chartered Retirement Planning

The latter two listed above 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 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), a CPA who 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).

FINRA's Broker Check Site

You can check for any regulatory blemishes on the advisor’s record at FINRA’s broker check site. However, one thing to keep in mind 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. However, if the record shows a long-term pattern of violations, customer complaints, or charges of a serious nature, you should probably find someone else.

Importance of Fiduciary Standard

Whatever sort of services you need, make sure that the advisor is held to fiduciary standards which charge them with the responsibility of acting in an investor's best interests. In the investment world, RIAs are required to abide by a fiduciary standard. Stockbrokers generally only have to comply with the less-rigorous suitability standard. However, the Department of Labor's Fiduciary Rule greatly expands the types of professionals expected to comply with fiduciary standards.

Registered investment advisors are either registered with their state of residence or the SEC. They are regulated under the Investment Advisors Act of 1940.

Questions to Ask

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

1. Will they track your investment cost basis for you?
2. Can they file your tax return and help you with other tax-related questions?
3. Do they look at insurance products, including life insurance, long-term care, and annuities?
4. Can they help you plan your estate and distribution of wealth?
5. Will they 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?

Ask About Communication

It’s also essential for clients and prospective clients to understand how their financial advisor communicates with clients and their frequency. Common questions include:

• How often will you meet to review your portfolio and your overall situation?
• Will these meetings be done in person or virtually?
• How flexible is your advisor's schedule?
• Does your advisor have an aid or assistant to help with questions prior to your discussions?

Any or all are fine, and both your preferences and the advisor may be based on your age and digital comfort level.

Ask About Financial Expertise

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.

In addition, different advisors have strengths and weaknesses regarding different asset classes. For instance, you may be interested in expanding your real estate, cryptocurrency, or other alternative investment holdings. Some financial advisors may be more experienced in investing in, managing, and advising on specific sectors.

The Bottom Line

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

Great financial planners will not only help you make money on your investments but will also help you reach your goals, avoid undue investment risks, save money on insurance, and achieve other major financial milestones.

To maximize your experience with your planner or 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 regularly.