Selecting a Financial Advisor

(This post assumes you have already concluded that a fee-only financial advisor is your preferred type of advisor; one who is not allowed to collect any form of compensation other than the fee they charge you, thus reducing the likelihood that they have a conflict of interest with what is best for you.)

The WealthAdviceMadeSimple recommendations include:

  1. Use a reputable source to find a pool of candidates to work with.
  2. Make sure you understand all the ways they can be compensated.
  3. Take your time in making this decision – it can have long-lasting implications.
  4. Understand what your total cost will be to work with them – and don’t be afraid to shop that price around. “You get what you pay for” does not apply specifically to this relationship.

This is not an easy task. Let’s take a high-level look at the steps involved. First, this relationship should evolve into a deeply personal one over time. Second, you are making a decision to begin establishing trust with someone who will be charged with managing your hard-earned wealth. There are many places to find financial advisors. The basic starting points include friends, co-workers, and other trusted professionals such as your CPA or attorney. There are also independent websites that can be used, such as the Financial Planning Association’s PlannerSearch, or the Certified Financial Planner Board of Standard’s Find a CFP® ProfessionalAdditionally, you could do some more organic search work through Google. As you start to filter through candidates, take the time to do some homework:

  • Read about them online. Make sure their bio shows they have experience and education, related to financial services. I would strongly encourage you to find a CFP® Professional. Other valuable designations to look for include Certified Public Accountant (CPA), Chartered Financial Analyst (CFA), and JD. Most other designations, in my opinion, are fairly hollow, paid for more than they are earned.
  • Here’s an often overlooked one – read some of the articles/posts they have published and make sure they are the actual author. Far too many advisors pay for content prepared by third-parties. You should want to judge the advisor on their competence, not someone else’s. (if content is prepared by a third-party, simply scroll down and look for the required disclosures noting this)
  • Find out what the advisor’s succession plan is. What if something happens to them? Do they have other senior advisors in their firm that can step in and continue to help you with your planning needs? Hint: Just because the site says “we” does not mean their is continuity in place. Often, these are just solo practitioners trying to suggest they have the depth of a planning team.
  • Contact them and request a no-obligation meeting to get a better sense of whether your personalities mesh – remember, this will likely morph into a personal relationship. If you have a meeting, ask them to answer these 10 questions.
  • Make sure they can communicate with you in terms you can understand.

2017 09 13 Making Right Choice

A word of caution – there are many advisors who hold themselves out as fee-based which should not be confused with fee-only. Many fee-based advisors will mention that they may be collecting commissions through insurance products, but only through required disclosures (the fine print). This matters because it increases the likelihood they could have a financial interest that conflicts with what is in your best interest.

Finally, fees matter! From transaction fees to product fees to professional fees, they all matter. What you don’t spend, you get to keep (true every day of the year except April 15th). You need to make certain you understand all the ways in which your advisor will be compensated. No question is off the table. If you’re not comfortable asking these questions, maybe this is not the right advisor for you. Remember, it’s a personal relationship and you need to feel comfortable with them.

The most important piece of advice I can give you: Don’t be afraid to do this work  yourself.

Jamie