How to Find a Financial Advisor That Meets Your Needs
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I used to be skeptical of financial advisors.
I figured that as a personal finance writer and self-proclaimed money expert, I knew everything I needed to know about my investments. Everything else, I assumed, was icing on the cake.
But after some friendly chiding from a colleague, I decided to consult with an advisor to make sure I was properly diversified. After an hour in his office, I was already scheduling another appointment for the next quarter.
What I learned in that short meeting has stuck with me ever since – I may be an “expert” in some areas, but there’s a difference between a layman’s knowledge and the expertise of a Certified Financial Planner™.
My advisor was able to point out the blind spots I never knew existed, examine the areas I needed to improve on, and give me a concrete strategy for the future. Since I started working with an advisor, I’ve never been more confident in my portfolio.
If you’re in the market for a good financial advisor, don’t pull the trigger just yet. Here’s what you need to know first.
How to Find a Financial Advisor That’s Right for You
Finding the right financial advisor is about more than shopping for quality service. It’s about establishing a relationship with someone you can trust.
Even if you decide to go with an automated robo advisor, you need to feel like your financial future is safe in their hands. That means knowing what you need, what to look for, and what to avoid.
1. Know what you need from your financial planning company
Financial planning companies can help in a few different ways. You can hire a planner from the company on a monthly basis to monitor your accounts and provide feedback if anything changes. Many people go over their accounts with a planner on an annual or a quarterly basis. Think of it as financial spring cleaning.
A financial planning company can be especially helpful if your money situation changes drastically. For example, a 22-year-old who inherits $200,000 when their parent dies should see a planner to determine the best way forward.
How often you need to see a financial planner depends on how comfortable you are with investing and how complicated your financial situation is. Someone who’s interested in learning more about retirement accounts, index funds, and the difference in their IRA vs. 401(k) might not need to see a planner as often as a consumer less interested in investing.
It’s also helpful to find a financial advisor who’s familiar with your particular situation. For example, if you’re divorced, look for a financial planner who specializes in divorces and blended families. They’ll be able to point out particular blind spots that a general financial planner could miss. You might also want an advisor close to your age because they’ll understand your specific concerns in a more personal way.
2. Understand the financial advisor business model
There are three main ways that advisors get paid: commission-based, fee-based, and fee-only.
Commission-based advisors receive compensation when a client purchases a product based on their recommendation. If you buy an advisor-recommended life insurance policy, they’ll get paid from the life insurance company. Clients don’t pay commission-based advisors directly.
It’s generally best to avoid commission-based advisors because their recommendations, such as annuities and whole life insurance policies, are often costly.
Fee-based advisors can get paid directly from the client, but can also earn a commission if the client buys one of their recommendations. Be cautious of financial planners who earn money based on a commission of any kind. This model encourages planners to pick investments that make them more money, even if they aren’t right for the client.
The most unbiased pay structure for a financial planner is the fee-only model. Fee-only advisors may be paid hourly, as a flat fee, or as a percentage of assets under management (AUM), depending on their business model.
For example, if you invest $1 million with a financial planner who charges 1% AUM, you’d pay $10,000 per year. With a flat-fee financial planner, on the other hand, you may pay a one-time fee of $2,000 for a comprehensive financial plan.
A qualified fee-only planner should give you an estimate of how much they’ll charge beforehand. I’ve paid between $500 to $750 for one financial planning session, where I got specific investment recommendations based on my current accounts.
3. Hire a Certified Financial Planner™
There’s no accreditation needed to refer to yourself as a financial planner or advisor. If you don’t do your research, someone claiming to be a financial planner could swindle you or prescribe products that don’t work for your situation.
The best kind of financial planner is a Certified Financial Planner™ (CFP®). This designation means they’ve passed a complicated exam with topics ranging from insurance to budgeting to taxes. A CFP® also has a fiduciary duty, which means they have to recommend investments and other products that are in the best interest of their client, regardless of whether or not they receive compensation for doing so. This is the highest ethical obligation a financial planner can have.
4. Make a list of questions
You should always investigate a financial planner before you hand over any money. Here are some good questions to ask:
- Are you a Certified Financial Planner™?
- What qualifications do you have?
- Do you have a fiduciary duty to your clients?
- How long have you been in business?
- Do you have any reviews or testimonials?
- What is your average client like (age, income, etc.)?
- What kind of situations do you specialize in?
- How do you charge your clients?
5. Look for a financial advisor
There are two main types of financial advisors to consider: robo advisors and human advisors. It’s important to consider which type of advisor is best for you before taking the plunge.
If you’re ready to learn how to start investing but not up for the commitment of paying for a full-fledged financial planner, a robo advisor could be your best option.
Robo advisors are financial companies that use tried-and-tested algorithms to provide advice based on a user’s specific financial situation. Most robo advisors charge low fees and have little or no minimum deposit requirement.
Robo advisors pick where you should invest and take care of all the nitty-gritty details. You set up a retirement account directly with a robo advisor and they handle buying the funds. They can even suggest how much you should save for retirement based on your goals, income, and age.
Some robo advisors offer access to human advisors who can answer more specific questions. This is often only available if you have a certain amount of assets invested with the company or if you pay an extra fee.
A robo advisor is a good alternative if you can’t afford a traditional financial planner but still want expert help in picking investments and deciding how much to save for retirement.
3 Robo advisors to consider
Blooom is a robo advisor focused on 401(k)s, 403(b)s, and other company-sponsored retirement accounts. Users sync their employer-based retirement accounts and the app suggests what you should be investing in.
Blooom will examine each fund’s fees to minimize those expenses. This robo advisor has two options – a free, simple analysis and a comprehensive plan for $120 a year. To learn more about this robo advisor, check out our Blooom review.
Betterment works with employer-sponsored accounts, IRAs, and taxable brokerage accounts. There is a .25% fee for all accounts and no minimum deposit. You can sync all your external accounts with Betterment and create a Betterment IRA or taxable account. Our Betterment review covers all the details you’ll want to know.
Wealthfront is another well-respected robo advisor. Investors can either open a Wealthfront-based account and allow the app to choose what they invest in or link all their current investment accounts to Wealthfront and allow them to make recommendations. The app chooses low-cost funds to minimize fees. Wealthfront charges a .25% advisory fee for all accounts, and there’s a $500 minimum deposit.
Finding a human financial planner is easy. Finding a qualified financial planner that you can trust with your money is another story. Here are some networks you can mine to a planner that meets your needs.
XY Planning Network: This network of planners is designed for Generation X and millennials looking for affordable, professional help. All of the advisors listed are fee-only Certified Financial Planners™ who have a fiduciary responsibility to their clients. You can find an advisor based on location or specialty.
National Association of Personal Financial Advisors (NAPFA): Advisors accredited by NAPFA need to have at least three years of experience, be fiduciaries, and be approved by a peer review. NAPFA advisors specialize in areas including LGBT couples and families, professional athletes and entertainers, socially responsible investors, among others.
The Garrett Planning Network: Anyone in this network has to be a Certified Financial Planner™ or working toward their CFP® license, have a fee-only payment structure, and charge on an hourly or retainer basis. You can search for local options or virtual advisors who can do phone or video consultations.
How to Find a Financial Advisor: Don’t Settle
A financial planner is like a mechanic. Picking the right one can mean the difference between driving your car for 15 years or breaking down on the side of the highway. Don’t settle for a planner who’s condescending, too busy, or seemingly unconcerned with your needs.
If you’re not sure how to choose between a robo advisor and a financial planner, make a list of the pros and cons. You can also try out both to see which experience you prefer.
Remember, the best option is the one you’ll actually do. If you can’t stomach the cost of a financial planner, just use a robo advisor. If human interaction is a priority, pick a financial planner. The important thing is to feel comfortable, confident, and secure in your financial future.