How Do You Find a Financial Advisor?

I recently spoke to our local Rotary Club on the financial industry, roles within it, and a few tips to answer the question, “How do you find a financial advisor?” Much of the information was new to the people in the room. It reminded me just how unsuccessful those in the industry have been at sharing this information in a clear, easy-to-understand way. Let’s see if we can fix that.

Step 1: Vet for education and training

Believe it or not, anyone can call themselves a financial advisor or a financial planner. There is no educational or experience requirement to use either title. While there are over 200 credentials available in this industry, one stands out as a baseline litmus test: the CFP marks. When I started in this industry, it took me three months to earn the right to call myself an investment advisor (self-study and an exam). It took me three years to call myself a Certified Financial Planner Professional. Earning the CFP marks comes only after roughly two years of rigorous study on over 70 topic areas, passing 7 competency exams, completing a comprehensive capstone course and interview, passing the final six-hour exam with a ~60% pass rate, and 6,000 hours of client experience. That’s why I say it’s an excellent baseline to take with you into your search.

Step 2: Consider which fee structure aligns with your needs

When speaking about the financial industry, the most common question I hear is, “How am I paying my advisor?” This is an important piece of your search. Broadly, there are three types of fee structures in the industry:

Commissions

You purchase products (mutual funds, insurance, annuities), and the advisor is paid by selling you those products.

Fee-Only

You pay the advisor directly for advice given; no product sales. This is often charged as a flat fee or percentage of assets managed.

Fee-Based

A combination of commissions and fee-only financial advice.

If the CFP marks are a litmus test for ensuring you work with a qualified professional, then fee-only is the test for moving toward a transparent fee structure that avoids/minimizes conflicts of interest. Here are 10 questions to consider asking your current or prospective advisor.

Step 3: Review the service models available

Under the umbrella of fee-only, you’ll want to dive one level deeper to think through which of the following service offerings might best fit your situation:

Hourly financial planning

• Typically ranges between $250 – $500/hour
• Great for times when you have 2-3 questions to which you need answers.
• Nectarine and the Garrett Planning Network directory feature advisors offering hourly planning arrangements.

Project-based planning

• Typically ranges between $2,000 – $10,000
• Great for DIYers who want a comprehensive plan but will implement recommended changes themselves.
• Advisor directories on the websites of the CFP Board, the National Association of Personal Financial Advisors, and the Fee-only Network will help you find an advisor who offers this service.

Subscription-based planning

• Typically ranges between $200 – $700/month
• Great for those who want an ongoing relationship with an advisor but want to retain the management of their investments.
• The XY Planning Network directory allows you to search for advisors based on specialties, and most offer subscription-based planning.

Advice-only planning

• Typically ranges between $6,000 – $20,000/year, sometimes flat, sometimes based on complexity
• Great for those who want an ongoing relationship with an advisor but want to retain the management of their investments.
• The Advice-Only Network allows you to search for advisors that offer this model.

Wealth management:

• Typically based on a percentage (1-2% is typical) of assets managed
• Great for those who want an ongoing relationship with an advisor and to outsource the management of their investments.
• Advisor directories on the websites of the CFP Board, the National Association of Personal Financial Advisors, and the Fee-only Network will help you find an advisor who offers this service.

Step 4: Assess their qualitative skills

Last week, I met with a brilliant couple with a complex financial picture. About 3/4 of the way through our meeting, one of them said,

“We’ve interviewed a few other planners. They all asked us questions, but it felt like they were just ticking through a list. They weren’t actually listening to us. What you’re doing, right now – in this meeting – is what we’ve been looking for. You’re not directing us. You’re acting as our thinking partner.”

This was an enormous compliment based on how I try to show up for my client families. Research shows that active listening skills and a collaborative approach are keys to a client/advisor relationship built on trust. These skills will be fully displayed during your first meeting with an advisor. What percentage of the meeting are you talking vs. the advisor? That can give you some insight into their approach to the relationship.

Regardless of titles or the fee structure you decide is best for you, how to choose a financial advisor may come down to finding one who believes in libertarian paternalism: they sincerely believe it is both possible and legitimate to positively impact your actions while respecting your freedom of choice. This includes your choice of whether to become their client and the countless choices you would face should you work together. (The concept of libertarian paternalism comes from behavioral economist Richard Thaler and legal scholar Cass Sunstein, authors of an excellent book called Nudge: Improving Decisions about Health, Wealth and Happiness.)

Looking for another resource to help find an advisor who is a great fit? Check out this article from Nerdwallet: How to Choose a Financial Advisor. I welcome a conversation with you about your search. If I can’t help you, I bet together we can find someone who can.