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5 Things to Keep in Mind When Picking a Financial Advisor

5 Things to Keep in Mind When Picking a Financial Advisor 


According to the National Financial Education Council, a lack of personal financial knowledge cost the average American $1,819 in 2022. This may surprise you, but with all the purported experts on social media and the internet proffering their "click bait" financial tips, many fall victim to these "too good to be true" suggestions. Nothing worth doing is easy, so having the proper professional who is aligned with your interests will take some time and effort if you want a financial plan that reflects your specific goals and what makes you unique. Below are five steps to take when choosing a wealth management advisor to work with: 

Step 1 - Make sure you know what your top financial priorities are   

There are many different topics to think about when it comes to personal finance. Think of your finances as a road map. There are multiple ways to get to your destination but no one's journey is going to look the same. Depending on where you are starting, you might want to come up with a list of questions or priorities. The topics that we think are essential for everyone to review and have a handle on are:  

  • Budgeting  
  • Paying yourself first    
  • Maximizing your savings in a tax efficient way  
  • Understanding and taking advantage of your company's benefits package  
  • Knowing what your investments are and how they are allocated  
  • Are you saving enough for retirement?  
  • Getting through retirement and making sure your assets are lasting as long as you do   
  • Making sure you have and are executing the proper estate planning documents  
  • Knowing how your taxes affect your investments and vice versa  
  • Planning for the unexpected         

Step 2 - Sift through the financial titles to make sure they align with your needs   


The alphabet soup of advisor credentials is maddening, we get it. What do they all mean? More importantly, how do I find the most appropriate for my circumstances?   

The gold standard of marks in the personal finance industry are the CFP® letters. CFP® stands for Certified Financial Planner. This certification requires that advisors pass a rigorous exam, have years of experience, adhere to strict ethical standards while acting in a fiduciary capacity when giving advice. All this means is that they are obligated to act in their client's best interest. You can verify their designation here.   

You may also see the ChFc® (chartered financial consultant) designation which is very similar to the CFP® and requires some of the same coursework, but the ChFc® is often trained in more modern financial planning topics like behavioral finance, planning for same-sex couples, blended families, divorce and special needs.    

CDFA® (certified divorce financial analyst) is someone who specializes in working with clients related to divorce in ensuring assets are divided equitably for the short and long term. This certification also may mean that the advisor pays special attention to the needs of blended families in terms of tax and estate planning. Others of interest CFA, CIMA or CLU.

The long and short of it is that you are responsible for vetting the advisor's experience and credentials. In 2019, 48% of Americans surveyed said they mistakenly thought financial professionals "must" adhere to the fiduciary standard. Firms with individuals that give "investment advice" must register with the US Securities and Exchange commission or the state depending on their assets under management. You can research this ahead of time by looking at the firm's or an individual investment adviser representative's registration information on the Investment Adviser Public Disclosure site.

Step 3 - Know how your financial advisor gets paid   


Advisors earn their keep in a variety of ways, and it is important to know how they are compensated.  The process should be transparent and avoid conflicts of interest. Some advisors are paid when selling certain products, others by the hour or most commonly based on assets under management also known as "fee-only." 

Hourly Rate - According to SmartAsset hourly rates for financial planners range from $120-$300 per hour, with some as high as $500-1000 depending on the scope and complexity of the work. Similar to the way you would pay an attorney, this is often used for point-in-time advice and where you will retain a greater degree of responsibility for maintaining your plan on an ongoing basis. 

Flat rate - Instead of an hourly rate, some advisors charge you a flat rate fee of $5,000-$10,000 for putting together a financial plan but it is up to you to implement and oversee the plan like what was described above.  There is typically not an on-going relationship with the advisor, but one should look to engage them again every 5-10 years or as circumstances/needs change.     

Subscription model: A burgeoning field, catering to younger investors in the early days of the accumulation phase, this approach provides access to the advisor and ongoing management for a fixed monthly rate.     

Transactional/Commission based- Advisors can collect commissions based on certain products they recommend. More common with insurance products and in the brokerage community, this area can create obstacles in the form of conflicts of interest.

Fee only - This is often referred to as the AUM (assets under management) model. This is when an advisor charges you a percentage of the assets they are managing. The industry standard is 1-2% per year. If you had $1,000,000 then the typical fee would be $10,000 per year.   

Step 4 - Use the right search tools to find 2-3 advisors that get you excited   

A referral from a close friend or family member is a great way to get introduced to an advisor.  Some of us do not know who to ask or are concerned that having a common connection may compromise privacy.  If people spent as much time on this as they do on other aspects of their lives like waking up early to be first in line at their favorite farmer's market during the summer or tracking down their sister's best friend's cousin's bread recipe, we would all be better off.  Knowing you may start your due diligence with a Google search here are some helpful tips. Do not get caught up in the aesthetics, yes, it is important that a firm has a presentable presence, but better take the time to go through their website and read the bios of the people at the firm or articles they have written on different financial topics.  Many have shared case studies or different client profiles which you may or may not identify with. If their "values", "why" or "process" strike a chord then go ahead and click that "contact us" button to set up an initial meeting.   

Some questions to prepare:  

  1. How do you work with clients?   
  2. What is your financial planning process?   
  3. How are you compensated?    
  4. What can I expect from you on a relationship basis?   
  5. What makes you or your firm different?   
  6. Do you have a fiduciary duty to your clients?   

If you want an advisor that specializes in your specific situation, ask more pointed questions.  For example, if you are a small business owner, ask them what types of small business owners they have worked with in the past, and what strategies have they implemented when working with such clients.     

Step 5 – Move forward with conviction and purpose   


Once you have found the right advisor, invest in the process like you would in any worthwhile relationship, they should do the same.  If they over-promise and under-deliver, you will know that they were simply telling a good story. While nothing is set in stone you should feel good about your process to arrive here.        

Bottom line   

Hiring a financial advisor can save you from making costly mistakes and add up to 3% points annually according to a white paper done by Vanguard. Your health, wealth and happiness are your most valuable assets, make sure to give them the attention they deserve.  

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1. This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice. 2. Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website. 3. Registration with the SEC does not imply a certain level of skill or training.