For many of us, feeling confident in our financial decisions requires the help of a skilled and reliable adviser.
A professional can help us create the path to our investment goals, whether that means generating immediate returns, providing college education for the kids, securing a comfortable retirement or all of the above.
Here’s the challenge: There are more than 271,000 financial advisers in the United States, according to federal data, and not all are created equal. So, how do you choose one?
First, think about what you expect to get out of a relationship with a financial adviser. Money Talks News founder Stacy Johnson explains:
“Are you looking for a certain type of return? Are you looking just for a monthly meeting? Are you trying to get an education about finances? Knowing what you want and saying it is going to keep you from being disappointed.”
Next, get recommendations from friends, family and others you trust — particularly if they are in a similar stage of life, with similar financial needs. Your accountant or lawyer may be another good source for referrals, depending on their familiarity with your circumstances.
Once you think you have some potential candidates, ask them these questions:
1. What are you going to do for me?
After giving a potential adviser information about your situation, turn the tables: Ask the adviser what exactly you can expect from him or her as a client.
For example, certified financial planner Shomari Hearn, managing vice president at Palisades Hudson Financial Group, describes his approach with clients as holistic.
“I’m going to look at your overall situation,” he told Money Talks News. “Not only looking at your investment portfolio, but taxes, estate planning, retirement planning.”
2. How are you paid?
Avoid advisers who have a financial incentive to focus on the offerings of particular firms or on specific investments. These are commission-based advisers, and they make money on products they sell to you. So, their advice may not be in your best interest.
Stacy Johnson recommends choosing a fee-only adviser — meaning they charge an hourly rate — to eliminate potential conflicts of interest. You can find such an adviser through organizations like the National Association of Personal Financial Advisors and the Garrett Planning Network.
In any case, make sure you are clear about what you are getting and how you are being charged.
“No matter how they get paid, ask them how much it’s going to cost, so you know,” says Stacy.
3. What are your credentials and disciplinary history?
You don’t just want to ask this question — you want to verify it as well.
If a professional claims a credential like the “certified financial planner” (CFP) designation, consult the online registry of the organization that offers the designation.
For example, to confirm whether someone is a CFP, use the Certified Financial Planner Board of Standards’ “Verify a CFP Professional” tool.
Other helpful tools include FINRA’s BrokerCheck and CFTC SmartCheck.
BrokerCheck is a database maintained by the Financial Industry Regulatory Authority (FINRA), a self-regulatory organization that oversees people and firms that sell securities like stocks and bonds.
As FINRA describes it:
“BrokerCheck helps you make informed choices about brokers and brokerage firms — and provides easy access to investment adviser information. … BrokerCheck gives you a snapshot of a broker’s employment history, regulatory actions and investment-related licensing information, arbitrations and complaints.”
CFTC SmartCheck is offered by the U.S. Commodity Futures Trading Commission (CFTC), which polices the derivatives markets. As the agency describes it:
“CFTC SmartCheck gives you easy access to free tools to check the background of financial professionals and stay informed on the latest fraud schemes — directly from those who regulate financial professionals.”
Do you have hints or tips for getting the most value from a financial adviser? Share them in comments below or on our Facebook page.