Many reliable financial professionals are happy to support your financial goals. Here are a few tips to help you find a financial advisor worthy of your business.
Do Your Research
Start your search with credible sources. Seek out referrals from family and friends who’ve had long-standing relationships with their financial advisors.
Don’t be afraid to do background checks for advisors or firms. Try FINRA’s (Financial Industry Regulatory Authority) free service, BrokerCheck. It provides a snapshot of a broker's employment history, regulatory actions, and investment-related licensing information, arbitrations and complaints. Additionally, BrokerCheck can confirm whether a person or firm is registered to manage and offer investment advice. Similarly, The SEC (Security Exchange Commission) allows you to search individuals named in SEC court actions or administrative proceedings and had judgments or orders issued against them through the SEC Action Lookup. The SEC also allows you to search your investment professional's background with Investment Advisor Public Disclosures.
Look for Credentials
Identify credentials held by an advisor. Professional certifications from accredited programs help ensure a standard body of knowledge and subject area expertise. While there are many notable financial certifications, CFP Board’s, Certified Financial Planner® (CFP®) program is one of the most comprehensive. Importantly, CFP® professionals commit to CFP Board to expand their knowledge and stay informed through mandatory continuing education.
Find Fiduciaries
Make sure your financial advisor is a fiduciary and get it in writing. A fiduciary is legally obligated to put your interests ahead of theirs. There are several situations where the interests of the financial professional conflict with your interests. A fiduciary must disclose conflicts of interest and take the action that benefits you in those instances. A benefit of working with a CFP® professional is that all CFP® professionals, as part of their certification, commit to CFP Board to act as a fiduciary at all times when providing financial advice to a client.
Note, Registered Investment Advisors (RIAs) and FINRA registered persons are legally fiduciaries, but broker-dealers and other types of money managers are not.
Understand the Fees You’ll Be Paying
The two most common ways a financial advisor makes money is by (a) earning commissions on the investments they sell and buy or (b) charging a fee based on the percentage of assets under management. Some advisors may do a combination or hybrid of these approaches.
The industry is slowly transitioning away from commissioned based models as most clients prefer fee-based advisors. Asset-based fees are tied to investor performance; asset managers are rewarded when assets under management do well and compensated less when assets under management do poorly. In other words, your best interests and the asset manager’s best interests are aligned.
…and The Service You’re Paying For
Will your financial advisor look only at the narrow scope of your investments with them, or will they take a broad view to your financial picture? Will they review your tax return annually and work in collaboration with your other professionals, like your attorney and CPA? Will they help you decide when to file Social Security and advise which is the best account to deposit into or withdraw money from (like a Roth or pre-tax IRA)? Comprehensive financial planning involves incorporating investments with everything else – from retirement spending to estate planning to proactive tax planning to much more.