How to choose a financial professional

  Who is the right Financial Advisor for you?: 10 points to consider
When is the right time to get your financial life in order? NOW. This is one priority that seems to be pushed to the back burner of our to-do list, however, should be front and center. It’s time to take control of your own financial life.
If you are managing your finances alone, now may be a good time to review how you are doing, compared to the plan you established. You didn’t establish a plan? Perhaps you should. For those who work with financial advisors or are seeking professional guidance, below are 10 things to consider when interviewing financial planners.

1) Is the professional a registered investment advisor? If yes, the advisor has a fiduciary duty, which means he/she must put your needs first. Financial professionals who aren’t fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you must be appropriate, but not necessarily in your best interest. The new rule established by the Department of Labor (DOL) addresses this potential conflict, however, is not being fully implemented across the industry. The only way to avoid this conflict is to work with a registered investment advisor.

2) How do I pay for financial planning / wealth management services? The advisor should clearly state in writing how he/she will be paid for the services provided. The three basic methods in which advisors are paid are: flat rate or hourly fee; fees based on a percentage of your portfolio value, often called “Assets Under Management” (“AUM”); and commissions paid per transaction. (The DOL rule is impacting the use of transaction based commissions on retirement accounts) The fees based on AUM are most typical with Registered Investment Advisors.

3) What is the advisor’s experience? Make sure to ask how long the advisor has been in practice and where. Also inquire as to any professional certifications, licenses or designations. While these identify credibility, they don’t guarantee a successful relationship. Here’s a description of some of the more common financial planner designations:
• CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.
• CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.
• Membership in the Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA maintains a high bar for entry: Professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The stiff requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.

4) What services do you offer? The services offered can depend on several factors including credentials, licenses and areas of expertise. Some offer advice on various topics, but do not sell financial products. Others may provide advice only in specific areas such as estate planning or tax matters. Most people are looking for a planner that does everything, sort of a ‘jack of all trades’. This may be right for you, or a team of professionals specializing in different areas could be the appropriate choice.

5) What is your approach to financial planning and investing? Some advisors prefer to develop a holistic plan that brings together all your financial goals. Others provide advice on specific areas, as needed. Make sure the advisor’s approach is custom to your needs, objectives, risk tolerance, etc. Some advisors will have models they assign you to based on a profile, however, isn’t necessarily a customized solution for your specific needs. It’s important to know whether the planner makes investment decisions or depends on others in the firm to do so. What was the advisor’s performance in both good and bad markets and ask yourself whether it’s more important to you to make money in a rising market or prevent losses in a down market. This is the time to let the advisor know what keeps you up at night regrading finances. If the advisor doesn’t address your concerns, it’s time to interview someone else.

6) It’s O.K. (and expected) that you ask for references. Ask for two or three current clients whose goals and finances match your own, as well as a professional reference, like an accountant or estate attorney.

7) Who is the custodian where my accounts will be held? This is your ‘sleep at night’ question. When interviewing advisors not associated with large brokerage firms or insurance companies, ask if they use an independent, third party custodian (this is the entity that produces your statements), which prevents the advisor from having direct custody of your assets and adds another level of security for your account. Make sure it’s a name / company you recognize (i.e. Charles Schwab)

8) Is there anything in his/her regulatory record that I should know about? Part of your research should include conducting background checks on the professional(s) you are interviewing. You can visit the Securities & Exchange Commission and FINRA websites or the State Securities website NASAA as well as the CFP Board. While some violations are non-starters (settlement of multiple customer complaints) others may be understandable (marketing materials not pre-approved; non-client or investment violations).

9) How often will I hear from my advisor? A good advisor will ask you how often and by what method you prefer to be contacted? If you and your advisor establish a communication schedule and strategy up front, you won’t be disappointed. It’s also important to ask if the advisor will remain your primary contact.

10) Would I have this person over for a BBQ? A relationship with a financial professional should be long term and multigenerational. You need to not only trust your advisor, but you should like him/her too. Ask yourself this question: would I invite him/her to my home for a BBQ? If the answer is no, this is not the right person for you. If you have any reservations, move on. There are plenty of qualified advisors out there, and you should make sure you find the right one that fits your qualifications.

If you have any specific questions on this topic, do not hesitate to contact Balboa Wealth Partners at (949) 445-1465

7 replies
  1. Tiffany Locke
    Tiffany Locke says:

    I’m glad that you mention how you can either choose a planner that does a little bit of everything or a team of specialist that work in different areas. In order to decide, you’d probably want to figure out which one will work best for your situation and make sure you can afford them. In order to do this, you’d probably want to figure out the type of assistance you’re looking for and your budget so you can look into the different financial planners and find one that has the skills and knowledge to help you.

  2. Mark Finch
    Mark Finch says:

    Thank you for sharing your tips on choosing a financial adviser. It’s interesting to know that financial advisors have different approaches to financial planning. If I were to need this service, I’d prefer to get someone who can make a specific plan based on my needs. I imagine having to deal with finances without an expert helping you out can be very stressful.

  3. Sharon Wilson Smith
    Sharon Wilson Smith says:

    I’m glad I came across your article about choosing a financial advisor. For me, the best part of your article is when you talked about how you should consider checking if your future advisor will care about how she’d be able to contact you and how often you’d like to be contacted. My husband is looking to hire a financial planner for both us to make sure that we’re managing our finances wisely. For me, the communication between you and the profession will matter to an advisor. I will make sure to remember all your tips when hiring a financial planner.

    • Jeff Gilbert
      Jeff Gilbert says:

      Thank you Sharon for the feedback. If you would like to discuss the process any further or need a referral, I would be happy to help.

  4. Ashley Turns
    Ashley Turns says:

    My husband and I are looking for some financial planning services to help us make sure that we will have enough money when we retire. So I really like your tip to make sure that you ask for at least a few references for clients with portfolios similar to yours. Since I definitely want a financial planning specialist who has had experience with cases similar to ours, we will be sure to ask for some references that have similar portfolios.

  5. Kyle Wayne
    Kyle Wayne says:

    I appreciate that you talked about learning about any certifications, licenses, or designation the person has. My uncle is looking to hire a professional to help do finances and consulting that are related to professional sports. I think I will talk to him about finding a professional with the proper certifications.


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