Four Steps to Finding the Right Financial Advisor
Fiduciaries only – vet their record, talk to their clients
Making the right money moves can feel like a full-time job on top of the one you’ve already got: Debt management. Retirement planning. College planning. Estate planning.
Hiring a financial pro to help you map out a plan, and possibly oversee your investment strategy can be a lifesaver, especially as you near retirement. Even if you’ve diligently saved for years, you now need a strategy that will generate the income you want in retirement, making sure your money outlives you.
Here’s how to find a pro you can trust:
1. Work with a fee-only fiduciary. You want to work with a pro who doesn’t have any financial conflict of interest. Brokers who make their living – even if just in part – by earning commissions on the products you buy and sell are potentially conflicted. And don’t be fooled: Plenty of brokers who work on commission love to obscure that fact by telling you they are a financial advisor.
Fee-only advisors do not work on commission. Instead, they charge either a flat fee, an ongoing fee or an hourly fee -- or a combination of those. A long-term financial plan might be a flat or hourly fee. When that pro oversees your investments, they charge a percentage of your assets they manage; 1% is common, though many accept lower fees.
Be alert for someone sliding in mention of being fee-based. That’s not good enough. It implies that the advisor sometimes works on commission. You want fee-only.
A fiduciary pledges to have your back and put your best interests first. Not all advisors act as fiduciaries. Simply ask if they are a fiduciary. Any advisor should be eager to put in writing – and sign the document – that they act as a fiduciary. Any hesitation and it’s time to move on to the next interview.
2. Make sure their regulatory record is clean. FINRA, the self-regulatory arm for the financial service industry, maintains the BrokerCheck website, where you can check the background of brokers and firms, including regulatory actions they have been subject to. The Securities and Exchange Commission has a searchable database on the records of investment advisors who must register with the SEC. The SEC also has a tool that will tell you if an investment advisor has been named as a defendant in any SEC court case or administrative proceeding.
3. Don’t be wowed by acronyms. There are dozens of designations a financial pro can slap on a business card. Some are evidence of important training – and ethical standards – and others are just marketing bling. There are online resources to help you sort out who is legit.
FINRA has a searchable database of professional designations. The Paladin Registry is a service that vets fiduciary advisors. Its free Check a Credential tool explains the rigor (or not) required to earn a title, and Paladin gives a star rating to help users gauge whether it’s an impressive designation.
If you are looking for ongoing planning help, you might want to consider working with someone who has earned the rigorous certified financial planner designation. At the CFP Board website you can verify that someone is indeed a CFP.
4. Interview a few candidates: You get multiple bids for renovating your bathroom, why not when you’re hiring someone to help manage your financial life?
Starting with referrals from friends and family is fine. Just be sure to ask for referrals from people whose situations are similar to yours. A financial pro who is great with a super-successful entrepreneur might not be the right fit if you are 35 and looking for help on getting your student loans paid off so you can start to save more in your company 401(k). And don’t presume the person who gave you the referral did proper vetting. That’s entirely on you.
If you don’t have any personal leads, you can start finding them by using the online search tools at the National Association of Fee-Only Personal Financial Advisors, Garrett Planning Network and Gen XY Planning. Members of these networks are fee-only and operate as fiduciaries.