How to Choose a Financial Advisor

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on January 11, 2021

Choosing a Financial Advisor

When it comes to choosing a financial advisor, many consumers have no idea where to even begin looking for one.

In most cases, people have no idea what qualifications they are looking for or what they specifically want their advisor to do for them.

And then there is the constant bombardment of ads from money managers, banks, insurance companies and brokerage firms in all forms of media, all promising that they are the best at what they do.

So, if you have decided that you need a financial advisor, where should you begin?

The first step is to determine exactly what you’re looking for.

Are you looking for someone to actively manage your assets?

Do you want banking services?

Or do you just need some advice on a certain topic, such as college planning or retirement?

The right answer for you may require three separate advisors in many cases.

Some advisors and companies claim that they can “do it all,” and in many cases they are indeed able to provide a comprehensive suite of services.

But that doesn’t necessarily mean that that advisor or company is the best one for you.

One place you can start is by looking for advisors who have earned some professional credentials, such as a Certified Financial Planner® practitioner.

Those who earn this designation have taken a series of courses on insurance, investment, education, tax, retirement and estate planning.

They are also required to adhere to a rigorous code of ethics designed to put their clients’ interests ahead of their own regardless of circumstances.

You can find a planner with this designation at www.cfp.net.

There is a search bar on the website that will bring up a list of designees in your area.

Choosing a Financial Advisor

There are also many other financial certifications that advisors can earn.

Following is a list of some of the more common designations and who usually earns them.

Certified Financial Planner® – In addition to the coursework described above, prospective certificants must pass a rigorous six hour board exam that covers the material from all five courses.

The test also includes case studies of hypothetical clients who have varying needs and objectives.

Test takers are expected to know how to apply what they’ve learned in class to these studies in order to get the correct answers.

The CFP® Board of Standards has worked tirelessly to make the CFP® designation the universal standard of the financial industry.

They have lobbied Congress to make this designation the official designation for all financial planners everywhere.

Those who hold this credential must always act as a fiduciary for their clients in all circumstances.

And “fiduciary” is the premier buzzword among financial professionals of all stripes today, as many consumers are told that they only want to deal with a fiduciary when it comes to getting advice or handling their money.

Chartered Life Underwriter (CLU) – Designees must take eight courses covering all aspects of personal finance and life insurance in order to become certified.

This designation is most commonly sought after by life insurance agents and financial planners.

The courses cover all aspects of life insurance, including taxation, non-qualified plans and the nuts and bolts of how cash value life insurance policies are structured and used.

Chartered Financial Consultant (ChFC) – This credential is also often sought after by life insurance agents.

This designation is, for all practical purposes, the life insurance industry’s version of the Certified Financial Planner® credential.

As with the CLU, prospective designees are required to complete eight separate courses dealing with all aspects of financial planning.

But there is no comprehensive board exam that must be passed in order to qualify.

However, these credentials alone do not guarantee that a given advisor with one or more of these designations is automatically the best one for you.

It is possible that despite their additional training, they may not specialize in the area that you need help with.

For example, a planner who charges a percentage of assets to manage your money may not be the best choice if you need help managing your employee stock options.

You might be better off finding a full-service stockbroker who has years of experience in this area to help you.

Choosing a Financial Advisor

On the other hand, if you are just looking for some unbiased advice about your general financial situation, then a fee-only advisor could be what you’re looking for.

There are many financial planners both with and without professional designations who charge either a flat fee to deliver a comprehensive written financial plan or charge by the hour to dispense advice that is tailored to your personal circumstances.

Or they may work on straight commission, charging you a fee for any transactions that are performed.

Some advisors actively manage their clients’ assets while others only give advice, leaving you to take your money elsewhere so that you will presumably follow the planner’s recommendations.

It is also wise to do a little bit of homework on any advisor that you talk to.

If you think that a given advisor may be the right one for you, then you should do a background check on him or her to see whether they have ever been in trouble with the regulatory authorities.

You can check a financial advisor’s regulatory history by logging onto the Security Exchange Commission’s website at www.sec.gov.

Here you can look up any advisor who has a Series 65 or 66 license to see if they have any black marks on their record.

You can also go to the Financial Industry Regulatory Authority (FINRA) website at www.finra.org and look up anyone who has any type of securities license.

The search will display their professional history and show whether they have ever been disciplined or reprimanded.

When it comes to finding the right financial advisor for you, it can be wise to take things like professional designations into account, but the bottom line is that you need to find someone who you feel comfortable with and who you can trust with your money (or to give you unbiased advice).

Being a fiduciary does not necessarily guarantee either of those things, as there are unethical advisors who carry one or more designations and incompetent advisors who adhere to fiduciary standards.

As in all other industries, advisors who have years of experience have a distinct advantage over newbies, and a  given advisor’s level of experience should also always be taken into account.

A stockbroker with no designations but who has been in the business for 25 years is often a better bet than a 25 year old planner who has earned a credential or two.

It all depends on what you need from your advisor and what they specialize in.

The first step is to determine exactly what you’re looking for.
Financial advisors are professionals who can help you manage your money.
CFP, or Certified Financial Planner, is a certification that a financial professional may earn.
If you find an advisor you like as a condidate, you should do a background check on them to see whether they have ever been in trouble with the regulatory authorities.