Financial Planning

How to Choose a Financial Advisor

Published by Bob Gustafson

How to Choose a Financial Advisor

A financial advisor helps people plan, invest, protect and manage their hard-earned money so they can reach their financial goals. One of the challenges in finding and choosing a financial advisor is finding one that will put your interests first.

Should you use a financial advisor?

This is usually the first question people have. Why can’t we do this ourselves? You can certainly choose to go it alone if you’d like provided you are willing to take the risk in doing so. Generally, the younger you are, the less complicated your situation. In that case perhaps you can take the risk of making mistakes and doing your own planning and investing.

The older you get, perhaps age 40 years and beyond, the costs of making a mistake increases substantially so it might be important to think long and hard about going it alone. Having someone working on your behalf in this situation is probably a good idea. It could benefit you to have someone with expertise to help you do the right things to grow and protect your assets.

The good news is that there are a lot of financial advisor options. The not-so-good news is that there are some you’ll want to avoid. How do you know which financial advisor to choose? Read on to get five tips for how to choose a financial advisor that is right for you.

1. Research the potential financial advisor online

A financial advisor can be considered a broker and an investment advisor. There are two sources of information available to you to check before you move forward.

  • BrokerCheck. This resource can provide you with the potential broker’s compliance report. In this report, you’ll receive information about whether or not this broker has been brought up on compliance issues in the past.
  • Investment Adviser Public Disclosure. This website provides information on advisors and firms currently registered with the SEC and states securities regulators

Before you select a broker or a registered investment advisor, do your homework. You have to make sure there isn’t a history of complaints out there about the potential person you’re going to hire.

2. Use a certified financial planner

It’s important that the financial advisor you choose is a Certified Financial Planner or CFP®. These advisors are certified by the Certified Financial Planner Board of Standards. This board sets and enforces standards for certified financial planners that they must adhere and commit to. Values such as “upholding the principles of honesty, integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence as outlined in CFP Board’s Code of Ethics” are ingrained in those who take the CFP designation seriously.

If there’s a financial planner not following the rules or being unethical, they can be brought in front of the board and potentially stripped of their certification. You can find out if an advisor who is a CFP has a clean record by checking to see if they have been disciplined.

Not only has a CFP  passed a rigorous test administered by the board, they also must commit to continuing financial and ethics education. As a potential customer, this certification is a good indicator that a potential advisor will give sound advice.

3. Ensure the financial advisor is a fiduciary

A fiduciary is an individual who is obligated under the law to do what’s in your best interest, not their own. Those financial advisors that are not fiduciaries are held to a lesser standard called the sustainability standard.

If you’re not working with a fiduciary, you may hire someone who advises you to make decisions that may not be the best for you. In fact, they could suggest you do things that will make them more money, but may not be in your best interest! Working with a fiduciary just provides an added layer of protection for you. In fact, if your advisor is not a fiduciary, you may wish to look elsewhere.

4. Find a financial planner with 10+ years of experience

It’s not that a younger advisor is not good at what they do. In fact, there are some very bright financial advisors in their 20s and early 30s. But having someone with a lot of experience in this business is always a good thing. They’ve seen a lot of unique situations, and some complicated situation. They’ve worked in markets that had more volatility. This experience has provided them with significant knowledge. And they can put that knowledge to work for you based on things they’ve learned in the past!

5. Make sure the financial planner offers services you need

Choose an advisor that offers the services you specifically need. Some advisors may have expertise with investments. Others can provide insurance information. You may need full blown financial planning help. Or you may just need some specific advice allocating your 401(k) plan.

A financial advisor that offers comprehensive financial planning looks at the big picture covering every aspect of your situation.

In order to make the right, informed decision when you ultimately choose your financial advisor, speak with several before you make that decision. Most expect you to interview several. Get referrals from friends and family members. Check out their credentials. Then meet with them to make sure there is an alignment between what you want to do and how they can help you get there.

Listen to our podcast below for more information. And if you have questions, we’re always here to help.