How to Choose a Financial Advisor

How to Choose a Financial Advisor

December 16, 2021
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Let’s dive right in: When you’re looking for a financial advisor (financial planner, wealth manager, CERTIFIED FINANCIAL PLANNER™ professional, etc.) don’t just choose the cheapest and call it a day.  Yes – Fees are absolutely an important part of the selection process, but it’s critical to look at those fees in conjunction with what kind of service you’ll get, the experience and credentials of the advisor, the fiduciary status (i.e. are they legally required to work in your best interest and consider your needs above all else?), etc. 

Think about it this way: When it comes to you and your family’s financial future and prosperity, you probably don’t want to work with the cheapest advisor you can find.  

Instead, here’s some information that might help you find the right advisor…not just the cheapest.

What will you get for the price you pay? 

There are price differences in our industry because some advisors provide limited services, while others provide more comprehensive services.  An example of a more limited arrangement might be an advisor that manages your investments and checks in once per year.  If that’s the kind of help you need, great!  Just know that it’s a limited engagement – you’re not getting full-fledged financial planning services, so you shouldn’t be paying as if you are.  The extreme opposite of this is an advisor that works with you on investments, estate planning, tax strategy, and other general financial planning topics in conjunction with one another.  An arrangement like this will be more involved, and rightly so, offered at a higher price.

As a side note, there are several different ways a financial advisor can structure fee arrangements.  

Are they just trying to sell you products to generate a commission? 

Some products are necessary, but it’s worth keeping an eye out for advisors that may not have your best interest at heart.  Products like life insurance, annuities, REITs, and more, can come with a hefty commission charge that isn’t always made totally clear to the buyer.  For example, an advisor may offer their services at a seemingly low rate, but then they may sell you something that generates a large commission without fully explaining how much you’re paying for it.  In an instance like this, it may seem like you’re paying a low fee for asset management or financial planning, but you’re paying fees every time you buy a product. 

So, ask them if they sell commissionable products.  If they do, that’s ok! But keep it in mind when they make recommendations.  Consider someone that has a fiduciary focus and is committed to acting in your best interest.

An incredibly important concept to highlight here is, not all commissionable products are bad or inappropriately sold.  These products still exist in our highly regulated industry because they can be very useful to certain individuals.  So, please don’t completely write these products off as commission opportunities for a salesperson.  Rather, approach them with a critical eye. 

What is their educational background?  Do they have proper licenses?  Are they credentialed? 

The standard of excellence certification in the industry is a CFP® designation.  They’re held to strict standards and go through the most rigorous education/training. You can find CFP® professionals near you by visiting https://www.letsmakeaplan.org There are certainly other, very relevant designations beyond the CFP®.  So, check out the advisors LinkedIn profile or their website to see what designations they have, google it to make sure it’s relevant, and feel good that you did some research on their educational background.

Are they a fiduciary?

Consider working  with someone who is legally bound to act in your best interest above all else.  For if they don’t, they’re held personally liable. 

Review their professional record. 

To ensure they don’t have any significant complaints against them.  If there are complaints, it’s not the end of the world, but it certainly warrants a conversation.  Ask the advisor about the marks on their record – there may be a good explanation.  In the end, it’s about trust – you make the final call. You can go to https://brokercheck.finra.org to search for advisor records. 

In semi-conclusion...

The list goes on and on.  There are several different factors that play into choosing the appropriate financial advisor for you.  The list above is just a few highlighted points worth considering. 

Oh, and by the way, not everyone is a great fit for every advisor.  I didn’t write this piece to highlight why I’m great and every other advisor isn’t.  I genuinely care about helping people find a better, appropriate fit, even if Pharos isn’t where you end up.    

-Scott Stanley, CFP®