Creating and following a solid financial plan that is tailored to your specific situation, goals, and risk tolerance can help you stay on track as you work toward meeting your financial goals. However, trying to create a plan and manage your investments on your own can be an exercise in frustration, especially if you don’t have a background in finance and investing. Fortunately, finding a good financial advisor isn’t necessarily tough – it just takes a little effort on your part.
Research, Research, Research
Finding the right financial professional begins
You may want to start by asking friends and family members for referrals. Your tax professional and estate planning attorney can also be good referral sources. If someone you trust has been working with a financial professional for years and is happy with the service and value that professional provides, you may want to consider working with the same person. Otherwise, you can begin your search – and research – online. In either case, conducting some due diligence can help you eliminate potential issues down the road.
Before you start looking, know that the terms “financial advisor” and “financial planner” are often used interchangeably in the financial services industry. However, that doesn’t mean each of these professionals does the same thing. Let’s explore some of the key similarities and differences to help you evaluate whether you should work with a financial advisor vs planner.
Financial planning is typically a goals-based process. Your planner should help you evaluate your current assets and liabilities, income, and goals for your wealth, before formulating a plan to help you reach those goals.
If you choose a Certified Financial Planner™, you’ll be working with a professional who met rigorous educational and experience requirements and passed the CFP® exam (no easy feat!) CFPs are bound by ethical standards and must act in your best interest. You can search for a CFP® online through the CFP® Board’s website.
The term “financial advisor” is generally applied to financial professionals who provide advice on and sometimes manage investors’ money, helping guide them on their investing journeys. Advisors seek to help investors identify their risk tolerance and comfort with investment strategies. The goal is to create and implement investment plans designed to help investors adhere to their financial plans.
When you choose an “investment adviser,” you’re getting a professional who is registered with the Securities and Exchange Commission (SEC.)
FINRA, the Financial Industry Regulatory Authority, and the SEC provide free, online research tools where you can look up employment history, education, select customer complaints, and disciplinary history for investment adviser representatives (IARs), registered agents of broker-dealers, and their firms.
Using the BrokerCheck tool and the SEC’s Investment Adviser Public Disclosure website (IAPD) can help you make more informed decisions. If you’re compiling a list of potential advisors or planners, conducting searches through these sites can provide invaluable information that may help you narrow your list.
Questions to Ask Potential Financial Advisors
Once you have narrowed your list of potential planners or advisors, you’re ready to contact them for an introductory phone call or meeting to try to determine whether or not their practice and your needs are a good fit.
Asking each potential advisor the same set of questions can help you evaluate your options. Use the list below to get started, although you may have additional questions that are specific to your situation:
- What is your background, and how are you qualified to be my financial planner or advisor?
- Who is your “typical” client? What types of clients do you work with? Have you worked with clients whose profiles are similar to mine?
- Do you have a support team who can step in to answer questions or help me if you are not available?
- What is your investment philosophy? Do you use benchmarks? Do you rely on asset allocation models to help guide clients’ investments? How will you determine the right mix of investments for my assets?
- Who is the custodian of the funds you manage? Is it an independent financial institution?
- What types of client interaction and communications should I expect? How frequently do you meet with your clients, either over the phone or in person?
- Are you held to a fiduciary standard? (In other words, is the advisor required to make recommendations and provide advice that is in your best interest?)
- How are you compensated? What other types of investment expenses will I pay if I work with you?
Potential Financial Advisor Red Flags
It’s important to review both the information you find online about potential advisors and their answers to your questions – don’t look at either one in a vacuum.
If you uncover any of the following, view it as a potential red flag and find out as much information as you can before making a decision to work with, or to pass on, a potential financial planner or advisor:
- Legal convictions. If you learn through BrokerCheck or IAPD that a prospective advisor has a felony or misdemeanor conviction (or pending charge) on his or her record, look at the underlying crime. How long ago was it? Does it seem to relate to the advisor’s job today? Review any type of criminal legal matter carefully.
- Regulatory actions. Similarly, if an advisor or planner has been fined or sanctioned by FINRA, the SEC, or another regulatory agency, proceed carefully. When regulators take action against a registered person, they typically provide a detailed summary of the facts and circumstances. You should look at this before deciding to work with an advisor.
- Customer complaint history. Investment advisory firms and broker-dealers are required to report certain customer complaints to the regulators. Reviewing this information through BrokerCheck or IAPD can help you identify whether there is cause for concern.
- Evasive answers. If a potential broker has some sort of disciplinary action, legal action, or customer complaints on his or her record, don’t be afraid to ask them about it. If they are evasive about answering, proceed with caution.
- Selling performance. Finally, try to avoid working with an advisor or planner who seems to be trying to sell you on the high returns his or her clients have achieved. Investing in the market, no matter who you’re working
with,will ultimately involve ups and downs. No advisor should promise consistently high returns. If they do, consider it a warning sign – no matter how attractive those potential returns are.
What to Expect from Your Financial Planner
So, what does a financial planner do, and how can you benefit from working with one? Here’s what you can expect when you’re working with a good financial planner:
A Roadmap for Your Relationship
Your planner should clearly establish and explain the types of services he or she will provide, what his or her responsibilities are, what your responsibilities are, and what documentation you’ll both need to provide to each other.
To be effective, good financial planners know they need to gather information about their clients. If you’ve never worked with a planner or advisor, know that you’ll be asked to provide information about your income, assets, debts, your monthly expenses, family, and your goals. Your planner needs this information in order to prepare a plan that’s tailored for you.
Recommendations and Options
After gathering your financial information, your planner should use it to prepare a plan designed to help you reach your goals. Good planners offer a plan based on the status quo, as well as “what if” scenarios and alternative options that show you how making changes to one part of your financial life could impact your goals.
If you hire a financial planner and pay a one-time fee for services, you may not receive ongoing monitoring. When you work with a financial advisor, however, the advisor should monitor your wealth and plan over time and work with you as needed to make adjustments.
At this point, you’re probably wondering “how much does a financial planner cost?” The answer really depends on the services you’re receiving. If you choose to work with a
If you work with a fee-based advisor, you can expect to pay a percentage of the assets the advisor is managing, often between 1% and 2%, although there are advisors charging higher and lower fees. The percentage is usually expressed as an annual figure but is calculated and paid quarterly. You could instead work with an advisor who takes a flat fee.
Preparing for Your Initial Meeting
Your advisor’s or planner’s effectiveness is going to depend largely on the information you give them. Plan on bringing the following information to your initial meeting:
- Statements for checking and savings accounts
- Statements for investments, including retirement accounts
- Information about your life and health insurance
- Pay stubs
- Income tax returns for the most recent tax year
- Your budget
- Statements for your mortgage, auto loans, credit cards, and other debts
If you find yourself asking “do I need a financial planner,” the answer is probably “yes.” People who don’t know how to find the right financial planner may struggle for years. By following the tips outlined above, you can make more informed decisions about hiring an advisor to help you reach your ultimate goals.
Don't neglect other areas of planning
Financial planning is just one critical part of planning for retirement and the care associated with our final years. If you don't have a comprehensive estate plan in place, Cake can help.