How To Choose a Financial Advisor

Dec 12, 2021

Searching for a financial advisor can be a daunting task both for those nearing, and in, retirement. Many people who hold themselves out to be financial advisors may just be thinly disguised salespeople. It is important to choose an advisor who has experience, holds important professional designations, and puts your interests above their own.

According to a recent survey, financial advisors rank along with mechanics and lawyers on the trustworthiness scale. That is not the best company to keep. Apologies to all of the good, hard-working mechanics and lawyers in the audience! But the survey goes to show that the public is skeptical about most money managers. Women are particularly dubious of financial advisors.

When it comes to financial planning, having someone who you trust, someone who understands you and your family, is critically important.  Often times, we know the right choices to make, we just need someone who will help re-assure us during trying times, someone who can push us to do what we know we should already be doing.

Financial advisors are more than financial mechanics, they are friends, cheerleaders, advocates. You want an advisor who will be there when the going gets tough, and who will say that which is necessary to help get you back on track. 

In addition to the emotional component, you need to make sure they have the technical know-how required to help you achieve your dreams. The sad truth is that anyone can call themselves a financial advisor. In most states, it isn’t even a regulated term. So, when looking for someone whom you will trust with your financial wellbeing, it’s important to ensure they have the technical expertise as well. Here are some of the important credentials to look for when searching for an advisor.

  1.  Certified Financial Planner (CFP®). The CFP® is perhaps the most respected financial planning certification program. A CFP® must meet education and testing requirements, and must maintain their education through mandatory continuing education while upholding a code of ethics. CFPs are held to a strict standard of fiduciary responsibility. According to CFP.net, at all times, when providing financial advice to a client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the client.

 

  1. Enrolled Agent (EA). An EA has demonstrated knowledge on matters of taxation and can prepare tax returns, provide tax advice, and represent taxpayers before the IRS. This is a key area for a financial advisor to demonstrate expertise.

 

  1.  Chartered Financial Consultant (ChFC®). The ChFC® is the competing designation to the CFP®. Both designations require training in investment planning, income planning, tax planning and minimization, risk management, and estate planning. The primary difference is a CFP® is required to take five courses to qualify, while a ChFC® must take nine.

There are several more important industry designations including the APMA®, CFA charter, CPA license and, PFS®. Beyond the letters, it is important to understand what services an advisor provides and to review all services and fees in writing before agreeing to a professional relationship.

It is also critical to ensure that your advisor is a fiduciary—an individual legally obligated to act in your best interest. Ask your financial advisor to take the same oath of loyalty the law demands of your lawyer and your accountant. Require them to put in writing a binding agreement to act in a fiduciary capacity and in your interest above all others.

Here are some questions to ask a financial advisor that will help find a good match:

  • What are your qualifications?
  • What is your process?
  • What is your investment philosophy?
  • Will you be serving me in a fiduciary capacity? (Ask for it in writing).
  • How are you paid?

A final word to the wise: ask about an advisor’s niche. What is their ideal client? How often do they deal with clients in situations similar to yours? You probably do not want a “jack-of-all-trades” advisor. You want someone with proven expertise helping people just like you.

A good advisor can make the difference between living with financial anxiety or having peace of mind. Find the advisor who educates you, makes you better at financial decision-making, and genuinely cares about you and your loved ones.

Want more? Check out this article I did with LegalZoom.com on how to hire a financial advisor: https://www.legalzoom.com/articles/certified-financial-planner-vs-financial-planner-whats-the-difference

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