How to Choose a Financial Advisor

2. Identify the right type of financial advisor for your needs

It’s important to understand that “financial advisor” is an umbrella term for a myriad of financial professionals. For instance, registered investment advisors (RIAs), wealth managers, estate planners, and financial planners may all call themselves financial advisors, but they each have their own specialties.

For example, if you’re looking for help to create a financial plan or retirement strategy, you may want to consider working with a financial planner, who typically offers a range of services to help clients reach their long-term goals. But if you’re looking for an advisor that specializes in wealth-building services for high-net-worth individuals, this is where a wealth manager might be a more appropriate fit.

In other words, as you shop for an advisor, pay attention to the services they provide as well as the types of clients they work with.

3. Check for credentials and fiduciary status

Financial advisors come with different qualifications and professional designations (e.g., CPA, CFA,CFP, etc.). One way to help determine whether they’re able to provide the type of advice you’re looking for is to review their credentials. An advisor’s professional designations can give you a general idea of their level of training, experience, as well as areas of expertise.

For instance, if you’re specifically looking for tax planning help, you may want to consider a financial advisor who is a Certified Public Accountant (CPA) with a tax specialization. But if you need someone who can provide sophisticated investment research and management services, you may want to work with a Chartered Financial Analyst (CFA), who specializes in investment strategy, portfolio management, and wealth management.

Not sure what a particular designation means? Visit FINRA’s professional designation database for more information. FINRA or the Financial Industry Regulatory Authority is a government-authorized organization that works to protect investors, ensure market integrity, and oversee broker-dealers.

This is important: In addition to assessing qualifications, you’ll also want to confirm a financial advisor’s fiduciary status. A financial advisor who is a fiduciary is legally required to act in a client’s best interest when providing advice. Be aware, however, that not all financial advisors are fiduciaries.

To confirm their fiduciary status, you can ask the advisors directly or check their professional credentials and registrations. For example, all Certified Financial Planners (CFPs) and registered investment advisors with the SEC are fiduciaries.

4. Understand the fee structures

Before signing on with a financial advisor, be sure to understand the fees you’ll be paying for their services. Here are the three common fee structures you’ll likely come across:

• Fee-only financial advisors are paid directly by their clients. In other words, they do not receive commissions. The fee can be based on a flat annual fee, an hourly rate, or a percentage of assets under management.
• Fee-based financial advisors may be compensated through a combination of fees and commissions via products they sell to their clients.
• Commission-based financial advisors are paid through the products they sell to clients, which may include mutual funds, insurance, annuities, etc.

5. Set up a meeting

Once you’ve narrowed down your options, it’s time to set up a meeting with your candidates. The first meeting is a great opportunity for you to gauge your rapport with the advisor. 

For instance:

• Do you feel comfortable talking about your financial situation with them?
• Are they a good listener? Do you feel like your concerns are being heard?
• Do they understand your values and goals?
• Do they have the qualifications to give you the advice or guidance you seek?

Also, consider asking the following questions:

• What services do you provide?
• What kind of clients do you typically work with? How often do you meet or communicate with your clients?
• Are you a fiduciary?
• What are your fees?

The integrity of the financial advisor and company should also be a key consideration. Double-check your advisor’s credentials online and see if there’ve been any disciplinary actions filed against them. You can check the background of an investment professional or firm using FINRA’s BrokerCheck tool.

The Securities and Exchange Commission also maintains the Investment Adviser Public Disclosure database where you can look up registrations and other filings for an individual representative or advisory firm.