How to Select a Financial Advisor

By Joe Messinger, CFP®

April 21, 2023

5 min READ

Did you know that just about any advisor can call themselves a financial planner even though they derive all of their income from sales commissions?

It’s frustrating to hear stories about “financial planners” who take advantage of families that are seeking reasonable advice and guidance. Still, with so much industry jargon out there, it can be tough for families to determine which financial planner is right for them — and which firms are just trying to sell them a non-ideal product and make a commission.

When looking for a financial planner, there are a few steps to take to determine whether or not they’re the right fit, and whether they’ll have your best interest at heart.

What about your needs?

You have hit a point in your life when things are coming together. You are seeing success in your career. Your family is growing. You have a 401k for your retirement and 529 plans for your children. You’re paying your mortgage. All is good. Why would you need a financial advisor when everything seems fine? How would you select a financial advisor?

One thing we all know for sure: Change is a constant.

Consider this…according to Investment News, “over the next 30 years, an epic $30 trillion will be passed down from baby boomers to Generation X to millennials.” Some of us are experiencing that sad point when we lose our parents. What happens to their money after they are gone? Are you afraid to make a misstep?

Perhaps you worry about retirement. Yes, you have a 401k, but is it enough? Could you be doing more?

And then there is paying for college. College may be the largest purchase you make (besides your home). How will you get that done? What’s the best way to set your children up for long-term success when making this decision?

Is there more you can do to build a brighter future?

Are you hesitating because you’ve heard scary stories about financial planners?

We’ve heard them too.

Take the story of a client who recently came to us. They shared the story of a visit they made to a different advisor. This advisor used high-pressure sales tactics of fear and stress, and the client literally left the office and cried all the way home in the car.

In our opinion, your advisor should help you feel empowered — not afraid.

How can you select a financial advisor to put your interests first?

You will want to answer these questions to start:

• What type of advisor are they?
• What is their fee structure, and can it influence the recommendations or advice they give to you?
• Do they have credentials valued by the financial advisor industry holding them to the highest standards of ethics and competency?
• Is their expert knowledge a fit for your unique needs so they can provide the best guidance on what is right for you?

Let’s look at some of the different kinds of financial advisors.

They are not all the same, and the difference lies in their primary loyalties and their method of compensation. Good advisors who truly care about their clients are doing good work at all types of organizations. Hopefully, we can help you demystify this complex decision and find the advisor that is right for you.

The broker or “registered representative” is employed by broker-dealer companies such as Merrill Lynch or Morgan Stanley. They earn a fee based on the value of your portfolio and can sell financial products like annuities, mutual funds, and insurance products to collect a commission on the value of those products. They are product salespeople.

A “fee-based” advisor is also able to sell financial products. They are associated with broker-dealers like Charles Schwab or Ameriprise Financial and collect an annual flat fee or a percentage of assets from you. Still, they also can collect commission on products they sell to you.

The securities are offered through the brokerage firm. They generally do not have a duty to disclose their source of income to you. You may not realize they are collecting commission on the product they recommended.

A broker or “fee-based” advisor does not necessarily put your interests first. They are serving two entities–you and their brokerage firm. They want to do the best for you, but they also sell the financial products of another. These products like high commission insurance and annuity contracts with ridiculous fees can have contingent deferred sales charges that charge you as much as 10% if you want to move your money in the next 10 years.

Merriam-Webster defines “fiduciary” as…

…“of, relating to, or involving a confidence or trust.” The third type of advisor, fiduciary, must make recommendations in your best interest. They cannot earn commissions and are known as “fee-only.” They must maintain your confidence and trust as they promote only your best interest in all aspects of your financial life, and they are required to do so by law.

The fee-only fiduciary advisor is often a Registered Investment Advisor (RIA). Their focus is not on selling a product that will make them a hefty commission because they cannot collect commissions. They want to help educate you because they are interested in your long-term success.

Did you know anyone can call themselves a “financial planner?”

Scary, right?! A good idea is to check out their credentials. In the financial planning industry, many different credentials can be earned. They are an alphabet soup of abbreviations like CFP®, CIMA, CPWA, CFA, ChFC, and CTFA.

While we won’t go into each of them, you can easily Google the credential of any advisor you are considering. Pay attention to who issues them, what they relate to, and the stringency required to receive and maintain them.

The CERTIFIED FINANCIAL PLANNER™ or CFP® credential…

…is an industry-standard of ethics and standards of competency. The CFP Board is a non-profit organization acting in the public interest by fostering professional standards in personal financial planning through its setting and enforcement of the education, examination, experience, ethics and other requirements for CFP® certification. Credentials such as these give you a measure of trust in the advisor you choose.

Another consideration when choosing a financial advisor is their area of expertise. Brokers and fee-based planners are experts in the products they sell. But think about the benefits of an advisor who is an expert at customers such as yourself.

Niche advisors focus on specific groups. They know all about the concerns of their niche market. Their niche may be a certain type of employee group like doctors or policemen. They may focus on employees of a certain company like Coke or Disney. Or they may be experts on the concerns of families with college-bound children.

When you meet face-to-face or talk over the phone with a potential advisor, you may ask these additional questions:

• What’s your planning process?
• How many meetings will we have?
• What topics will be covered?
• What topics aren’t covered?
• Do you use technology? (e.g. client websites)
• How often will we meet for reviews after you develop my plan?
• Will you help me implement my plan?

We know…lots of information to pull together! But having all the facts will give you an accurate picture of what you can expect from that advisor.

As you approach the time when paying for college and saving for retirement are foremost in your brain, pause a moment over that financial aid night flyer. Do some research about who is putting on the program. They are often disguised to make it appear as a school-sponsored events. Read the fine print and let Google be your friend to ensure the presenter has your best wishes at heart.

Updated April 2023.