Editor's Note: This story originally appeared on The Penny Hoarder.
Do you know your parents’ financial adviser? Is he a friend of the family? Has she served your parents for decades?
Wouldn’t you like to have one of those? You have money that needs minding and could use a steady, knowledgeable hand. After all, you do want to retire someday.
It is likely that you know someone who has the perfect financial adviser. But such relationships don’t just happen. They occur through research and a full understanding of your financial advice needs.
In order to find an adviser who would best fit your situation, you must know why you want help in the first place. Then, you can ask the financial adviser a few questions as well. These are not necessarily the literal questions you will ask, but you need to know the answers whether you get them from the financial professional or by searching the internet or talking to another client.
Question 1: “Why Do You Want a Financial Adviser?”
Whether it is an increase in income, or an inheritance, or you are reaching the age where retirement income needs to be a consideration, you have a reason or reasons for wanting to use a financial adviser. Ask yourself why.
Make a list. You will only find the correct financial adviser if you know what it is you want that adviser to do for you. Whether it is retirement planning, budgeting for your child’s education, or you have developed a new interest in investing, your relationship with a new financial adviser is only going to work if it works for you.
Figure out what services you want from an adviser first before you begin researching possible candidates. Your personal needs will narrow your list of candidates and will also point you in the correct direction as you do your search for candidates.
There is something else you should consider besides your current financial advisory needs. Are you hoping this financial adviser you find will be with you for years to come? If so, you should consider the age of the person you are working with, and eventually ask them their professional intentions toward their own retirement. You don’t want to be left in the lurch down the road, going through this process again.
Question 2: “Are You a Financial Adviser?”
Hah! That’s a trick question! There is no such thing as a “financial adviser.”
At least, not as far as the Securities and Exchange Commission is concerned. Absolutely anyone can call themselves a “financial adviser’ because there is no regulated definition of that term.
However, there are a lot of other terms that are indeed regulated, that require a lot of study (sometimes years), and that come with all of those cool initials that you see following the names of the financial professionals you find.
While anyone can call themselves a financial adviser and get away with it, what you want to find is a Certified Financial Planner. A CFP undergoes 1,000 hours of education and must pass an exam offered by the Certified Financial Planner Board of Standards.
Keep in mind, CFPs have worked hard to be able to offer their services, and you will pay more in fees (most likely) to receive those services.
Besides their education and dedication to the job, CFPs also must comply with the Fitness Standard, which says they will always put the interests of their client first. Not all financial professionals adhere to that standard.
You could also look for a CFA, a Chartered Financial Analyst, who already has had to work as an investment professional for four years before even applying to earn a CFA certification. Again, you should decide if you need this level of investment advice.
What you may need is a Personal Financial Specialist (PFS), who is a Certified Public Accountant who also has experience in wealth management and personal finance, including insurance, budgeting, and investing. This may be more your speed.
Question 3: “Are There Complaints Against You?”
The reason many people never hire a financial professional to help with their personal finances is because they are afraid of being taken advantage of, or having their life savings stolen outright. But when you are ready to consider candidates for your personal financial adviser, you can find out whether your candidate has any client complaints against him already.
The website brokercheck.finra.org allows you to type the name of a financial adviser or provider into a search engine and find out if there are any complaints against that person or company with the Securities and Exchange Commission.
It is a government-authorized not-for-profit organization, and it is linked to other websites to provide consumers information to protect them from the rats who give financial advisers a bad name.
Question 4: “How Do You Make Money?”
Not too long ago, this question boiled down to “fees versus commissions,” meaning the difference between paying an adviser for every action they take in your name versus paying a commission on the investment products they sell you.
Today, most financial advisers work on a fee-based system, but you must determine what services you are willing to pay a fee for. Do you need budgeting, retirement planning, investment planning, education funding planning? Each of those services will come with a price, and you should ask your adviser candidate precisely how much each service will cost you.
Even better, there may be a published fee schedule on their website.
Question 5: “Are You Listening to Me?”
Surprisingly, this is a legitimate question, and the most important one.
Successful financial advisers work with dozens, maybe even hundreds of clients, and they may believe they know what is best for their clients. However, what is right for one client is not necessarily what is best for another client. You have already decided what you want your financial adviser to do for you, for example, help you prepare for retirement or save for the baby’s college education. Is he or she willing to do what you ask of them?
If you want to limit your financial adviser to playing a specific role in your financial plan, does he accept that decision, or does she try to sell or push you into other services you already decided you don’t want or need right now?
If your financial planner is going to be looking for investments for you, does he or she understand your risk tolerance level? Does your financial adviser candidate take “no” for an answer?