6 Practical Tips to Find Top-Rated Financial Advisors and Financial Planners
Dan Casey
Vice President
Vice President, Financial Planner, and Portfolio Manager at Arrowroot Family Office. I manage clients’ investment portfolios and help them find solutions and optimal strategies for their financial needs. In addition to my passion for finance, I am an exercise physiologist with over a decade’s experience.
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Managing money is often one less aspect an individual should be worrying about in their complex daily life. Choosing a financial advisor or financial planner to do the heavy lifting when it comes to managing money can make an individual’s or family’s life a lot easier; however, finding a financial professional that is the right fit can be challenging.
Finding the right financial advisor or financial planner that fits your needs can be a difficult endeavor to undertake; however, if done well, it can take a lot of weight off of an individual’s or family’s shoulders. Giving a financial professional access to a person’s finances can be very difficult to do, as this is one of the most sensitive areas of an individual’s personal life.
When hunting for a financial advisor or planner, one is hiring a financial expert to work for them. Similarly to a job interview, an individual or family would want to pick the best candidate for their financial situation and position. An expert that fits the criteria and expertise set by the individual or family and one that also fits in well with the price point set by the respective party. It is important to craft carefully worded questions and pay attention to the detailed answers potential financial advisors may provide when interviewing a candidate. Some financial advisors act as salespeople rather than advisors and can often be riddled with conflicts of interest with other institutions. This is why it is essential to find a financial advisor or financial planner that only works in the best interest of the individual or family.
When looking for a potential financial advisor or financial planner, it is important to do due diligence and research multiple options before picking the best fit. Here are 6 practical tips that can help an individual or family find the best top-rated financial advisor for any financial situation.
1. Figure Out Which Part of One’s Finances Needs Professional Assistance
Before speaking with a financial advisor or financial planner, it is important to decide which aspects of one’s finances need professional help. Therefore, when one finally does sit down with a potential financial advisor or financial planner for an introductory consultation, one is able to know what they want, understand what questions to ask, and discern what qualities to look for within a financial professional. In order for a financial advisor or financial professional to get a complete understanding of one’s financial needs and goals, one needs to be able to explain their money management needs in great detail.
Financial advisors and financial planners can provide more than just investment advice. The most sought-after financial advisors and financial planners are the ones that help individuals chart out a course and plan for their financial needs and goals. Financial advisors and financial planners can cover all sorts of planning, from retirement planning, debt repayment, insurance, estate planning, college fund planning, budgeting, tax planning, and much more. Depending on an individual’s or family’s financial situation, one may not need a fully comprehensive financial plan. However, clients with more complex financial needs would need further assistance that a financial professional such as a financial advisor or financial planner could provide.
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2. Choosing a Financial Advisor or Financial Planner
When looking for a financial advisor or financial planner, individuals have three options to choose from based on the complexity of their financial situation, needs, and goals. Each option has its benefits and disadvantages to consider before looking for services within that group. These options include Robo-Advisors, Traditional Financial Advisors and Financial Planners, and Online Financial Advisors and Financial Planners.
Robo-advisors are perfect for low-net individuals or families with non-complex or simple financial situations/structures. Robo-advisors can manage and build a portfolio of low-cost investments suited for an individual’s or family’s financial needs and goals. Typically Robo-advisors are cheaper than online or traditional options as the entire process is automated. With no human financial professionals to compensate, Robo-advisors can charge as low as 0.25% or less of an individual’s account balance as compensation for the financial services the platform provides. Robo-advisors are known to provide above-standard investment guidance and portfolio management for non-complicated investment structures, with some Robo-advisors even offering access to human, financial advisors or financial planners for one-off complex questions. Besides the occasional one-off question, personalized guidance is not provided. This is why it is recommended to only use a Robo-advisor if on a tight budget or if one’s financial situation is not complex.
For individuals or families with more complicated financial advisory or planning needs, a traditional, in-personal financial advisor or financial planner may be necessary in order to better aid a particular financial situation. A traditional financial advisor or financial planner can provide holistic, one-on-one advisement that a computer algorithm, like a Robo-advisor, would not be able to produce. Unlike a Robo-advisor, traditional financial advisors and financial planners can provide comprehensive financial advisement on various subjects such as estate planning, tax planning, budgeting, college fund planning, debt repayment, and more. Traditional financial advisors and financial planners are typically the most experienced and knowledgeable within their specialized finance space.
Online financial advisement and financial planning services do exist. These services are comparable to traditional advisement services, except they are done fully online. These services are typically cheaper than traditional ones, as many financial advisors and financial planners work from their home offices, resulting in reduced leasing costs for office space for financial advisory firms. However, because individuals and families are still advised by human, financial advisors and financial planners, these services typically charge more than a Robo-advisor would but provide more personalized guidance and advisement.
3. Check the Credentials of the Financial Advisor or Financial Planner
The first step any individual or family should do when looking for a financial advisor or financial planner is to check their credentials and do research on the financial advisor they are considering. In order for a financial advisor to truly have the best interest in mind for an individual or family, they must be certified and registered as a qualified fiduciary. Financial advisors should also have certain certifications and at least a four-year degree related to business under their belt. Common degrees for financial planners and advisors include business, accounting, finance, and economics. Common certifications for financial advisors and planners include Certified Financial Analyst (CFA), Certified Financial Planner (CFP), and Certified Public Accountant (CPA). Other licenses, such as the Series 65, Series 66, and the Accredited Investment Fiduciary(AIF) License, can be important indicators of knowledge and ability within the finance space. A high-level certification or license such as the ones mentioned above displays a high level of mastery within the subject of finance or accounting, which can provide individuals and families with confidence that the financial advisor or planner is proficient in their work. One can verify financial planners’ or financial advisors’ certifications at the CFA Institute’s site or the CFP Board’s site. However, when looking for a financial advisor or planner within a reputable financial institution, one can trust that their advisors and planners are certified.
4. Understanding the Nuances of How a Financial Advisor or Planner gets Paid
When searching for a potential financial advisor or financial planner, it is important to understand the different intricacies of payment options and fees. Different financial institutions and firms have different varying policies when it comes to payment feeds.
There are multiple ways financial advisors and financial planners go about fees. One option is a management fee for investment management services. This fee is typically a percentage of the assets the financial professional is managing on the client’s behalf. A typical fee is 1% of an individual’s assets. These fees could be implemented annually, bi-annually, quarterly, or monthly. The larger the balance, the smaller the overall fee is typical; however, some financial advisors or planners may add a performance fee for any potential profits acquired with their investment strategy and guidance. This will add an additional fee charge to the overall balance.
Financial advisors and financial planners may also charge a flat or hourly rate. This type of fee is usually reserved for financial planning or consultations. Flat fees are typically paid out for a full service or work, like the creation of a financial plan or budget. Financial advisors can also earn a commission from recommending or selling various specific financial products. These products can include mutual funds or annuities and are often paid out in addition to a client fee. Lastly, some financial advisors or planners work under an annual salary from the financial firm or institution they work for. This means that any fees that a financial advisor or financial planner would charge would go to the institution first before it is distributed in an annual salary form.
When looking for a financial advisor or financial planner, it is highly recommended to look for a financial professional that is fee-only and not fee-based. Fee-only financial advisors and financial planners do not charge commission and only charge clients a percentage-based management fee or a flat/hourly rate. Meanwhile, a fee-based financial advisor or planner can earn revenue from a combination of client fees and commissions. This means that these financial professionals can earn money from directly managing one’s assets and providing financial planning services while also earning some extra commissions on the side. It is recommended to avoid these particular financial professionals as they are prone to selling or recommending securities or insurance policies that may go against a client’s best interest. When commissions are taken out of the picture, financial advisors and planners have no need or purpose of proposing financial products that are harmful to an individual or family because those products could have a negative effect on the performance of the client’s finances, which would then produce a smaller management fee for the financial advisor or planner.
In short, commissions represent a potential conflict of interest for the financial advisor or financial planner, which is best to be avoided if possible. If a financial advisor or planner is held to a fiduciary standard, then that financial professional is required to fulfill a higher ethical standard and act within the best interest of an individual or family. Any registered investment advisor (RIA) holds this standard as part of their registration with the SEC. An RIA is a financial advisor or financial planner that should be sought after by any individual or family.
5. Search for Clarity and Understanding
When speaking with a potential financial advisor or financial planner, one should be able to understand everything that is discussed during a consultation. Knowing the entire plan a financial advisor or financial planner is attempting to set up for an individual is important in order to get a better understanding of what one is looking for in the financial services an advisor or planner may provide. As clients, all individuals should be satisfied with the responses financial advisors and financial planners have to all likely questions. It is impossible to build a long-term relationship with a financial professional that is not honest or transparent about all components within the financial planning process. It is essential to avoid any financial advisor or financial planner that makes a client feel incompetent or unintelligent for asking simple questions or clarifications.
Some ways to tell if a financial professional is not honest or transparent with their business practices or financial planning process is if they only offer proprietary financial products, charge fees without explanation or warning, or actively trade assets and securities within a client’s account without authorization or explanation to the client. Understanding if one’s financial advisor or financial planner operates on a commission basis is critical to then discern which fiduciary products the financial professional could earn a commission from. If a client suspects a financial advisor or financial planner of unauthorized or unambiguous activity and the financial professional is unclear in the answer they provide as to the reasoning behind their activity, then it is best to avoid their services and find a new advisor or planner. Many financial advisors and financial planners make money by obscuring their activities, so it is vital to make sure it is transparent and clear as to how they receive their wages.
6. Find a Financial Advisor or Financial Planner that Keeps Clients Accountable
Many individuals are looking for a financial advisor or financial planner in order to help them break certain poor financial habits and behaviors. A financial advisor or financial planner should be empathetic and understand a client’s financial situation and feelings entirely. This way, they are able to communicate the key points that need to be addressed and all of the required steps for a potential solution. When a financial advisor or financial planner carefully listens to all the needs and goals of an individual or family, they are able to provide a level of reassurance and comfort that can often be overlooked when looking for a financial professional. This way, a good financial advisor or financial planner is able to motivate individuals to work on their finances and achieve financial freedom and other goals.
A well throughout financial strategy is nothing on paper without a caring financial advisor or financial planner that understands all of the goals of an individual or family. A good financial advisor or financial planner should establish trust, ask probing questions, and consider all unique steps when crafting a solution for a client. In times of great financial success or great financial burden, a financial advisor or financial planner is there to bring their clients back to reality and keep them on track to reach their financial goals.
FAQs
- National Association of Plan Advisors. “Why Consumers Use – and Don’t Use – Financial Advisors.“
- U.S. Securities and Exchange Commission. “Investor Bulletin: Form ADV – Investment Adviser Brochure and Brochure Supplement.“
- Financial Industry Regulatory Authority. “Qualification Exams.“
- CFA Institute. “How to Become a CFA Charterholder.“
- CFP Board. “The Certification Process.“
- The American College of Financial Services. “Chartered Financial Consultant.“
- College for Financial Planning. “Chartered Retirement Planning Counselor – CRPC.“
- American Institute of CPAs. “CPA/PFS Eligibility Requirements.“
- The American College of Financial Service. “Chartered Life Underwriter.“
- U.S. Securities and Exchange Commission. “Information for Newly-Registered Investment Advisers.“
- Financial Industry Regulatory Authority. “Suitability.“
- U.S. Department of Labor. “Conflict of Interest Final Rule.“
- U.S. Securities and Exchange Commission. “Regulation of Investment Advisers by the U.S. Securities and Exchange Commission,” Page 1.
- The National Association of Personal Financial Advisors. “Find a Fee-Only, Fiduciary Financial Advisor.“
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