There are, quite literally, hundreds of thousands of people in the US who say they provide financial advice. These financial professionals and their firms loosely use the terms financial planner and financial advisor (interchangeably spelled adviser), among other titles you may see, including wealth manager, financial consultant, or financial analyst.
Sadly, many financial professionals at these companies are little more than salespeople peddling proprietary financial products like insurance policies, high-cost mutual funds, and annuities. You can usually find competent financial advisors at all wealth management firms; The problem is the sales culture that still exists in many companies.
So how can you find and choose the best financial advisor for your financial situation? In this article, we’ll help you learn if you need a financial advisor, explain the different types of financial advisors, how much they cost, and our top recommendations of where you can look online to find your ideal financial advisor.
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Before looking for a financial advisor, have you determined if you need one? To answer that question, you must decide what kind of help you need to make financial decisions and manage your finances.
First, take some time to consider the type of financial advice and guidance you are seeking. For example, start by asking yourself these questions:
- Do I need help with basic budgeting?
- What about saving? Investing? Retirement planning?
- What assistance do I need with income planning in retirement?
- Do I have enough life insurance?
- What estate planning services do I need?
- Do I need help with a financial plan to pay off my student debt or refinance outstanding loans?
Competent financial advisors come in many shapes and sizes. Deciding what you want them to do for you is the key to finding the right advisor. The answers to the above questions are where you should start. If you only require investment help, there are inexpensive options to consider. If you want a comprehensive financial plan covering all areas, that’s another type of advisor, often referred to as a financial planner.
The bottom line—Before searching for or interviewing any financial advisor, know your financial goals and what it is you want them to do for you.
Hiring an advisor or financial planner is a significant life decision you need to get right. Not doing so can cost you a lot of money and aggravation. Fortunately, you have more options today for finding the perfect financial advisor than your parents or previous generations.
Your choices are considerable with advisors who can work with you online, specialist financial advisors who only work with clients like you, robo-advisors, and online financial advisors.
Here are four traits we believe your financial advisor should have:
- Independent – Experience tells us that it is difficult to limit the conflicts of interest in wealth management firms with a sales culture. Instead, look for an independent firm and financial advisor committed to putting their client’s interests first, not just in what they say but in how they operate.
- Experience – An advisor’s experience is essential to making an informed and educated hiring decision. Even if you work with a younger or less experienced financial advisor, the best advisory firms have mentorship or apprentice programs to train their more junior advisors.
- Quality – Financial industry designations indicate an advisor’s commitment to a high standard of advice. TheCFP® designation (Certified Financial Planner) is the most accepted mark for those seeking comprehensive financial guidance from professionals committed to upholding a fiduciary standard. That’s not to say an advisor has to be a CFP® to give good advice. However, a Certified Financial Planner agrees to uphold their fiduciary duty to always act in your best interest.
- Fee Structure – How consumers pay financial advisors for advice is a hotly debated area in the media and the financial services industry. There are several ways to pay for financial advice. Some ways advisors get paid are commissions, a percentage of assets under management, fees and commissions, and fee-only. We believe the fairest and most easy-to-understand structure is the fee-only structure. That can be a flat, monthly, quarterly, semi-annual, or annual fee.
The best firms and their advisors offer a wide range of services, from a comprehensive financial plan to needs-based services. For example, maybe you only want a second opinion on your investment portfolio. Perhaps you want them to analyze whether it’s better to take a lump sum rather than income for your pension plan.
Or, at the other end of the spectrum are those who want a financial advisor who can help you set goals, help with budgeting, plan your retirement, and manage your investments. In other words, a financial advisor or planner who offers you a comprehensive plan.
You can expect most financial advisors to offer the following planning services:
- Free initial consultation
- Goal setting
- Cash flow and net worth analysis
- Retirement expense analysis
- Retirement income analysis
- Social Security analysis & recommendation
- Tax planning
- Life expectancy modeling
- Scenario modeling
- Retirement plan analysis (401(k), 403(b), 457, IRA, Roth, etc.)
- Investment account analysis and recommendations (asset placement)
- Detailed risk profile
- Portfolio Stress Testing
- Asset allocation recommendations
- Investment management
- Life insurance analysis and recommendations
- Health insurance analysis and recommendations
- Property and liability insurance analysis and recommendations
- Estate planning analysis & recommendations
- Implementation plan
- Unlimited meetings (in person, phone, virtual, etc.)
Clients can choose the financial services they need and want. Good financial planning firms have a fee structure that allows them to do that at a reasonable fee.
There are several ways financial advisors make money.
- Commission only – advisors receive commissions on products they sell. That can be mutual funds, individual stocks and bonds, annuities, and other financial products. Having your advisor’s compensation based on what they sell you would not be the first choice.
- Fees and commissions – As the name suggests, your financial advisor gets paid on commissions of financial products sold and fees based on how much money they manage for you. That fee might be a percentage of the assets they manage, an hourly, or a flat fee. You may see these advisors referred to as “Fee-based.”
- Fee-only – In the fee-only model, you pay your advisor a fee for their services. The longest-standing fee-only model charges based on the amount of money invested with them. That eliminates many smaller investors who don’t have large enough portfolios to warrant the services they need. Firms that charge an hourly fee, flat fee, or a monthly subscription fee can service a much more extensive range of clients than the percentage of assets model.
- Advice-only – This relatively new form of compensation involves paying only for advice, not implementation. In other words, you pay a fee, often hourly or a flat fee arrangement, in exchange for advice from a financial advisor who will tell you exactly what stocks or investments to buy. Still, you will be responsible for opening a brokerage account at a firm like Fidelity and Schwab and conducting all transactions independently.
In looking at these four models, many people feel a fee-only model not tied to how much money someone has to invest is the fairest form of compensation.
Deciding on the type of financial advisor you want to hire is where things can get tricky. There are several kinds of advisors to choose from, including fully digital advisors and traditional advice offered by financial professionals. Let’s review a few of the most popular types of financial advisors.
Everything seems to be going digital these days. Your financial advisor will likely offer some digital services to manage your money to complement the services they perform themselves.
More recently, digital investment advice platforms known as “robo-advisors” have entered the arena, with firms like Wealthfront and Betterment among the most popular.
Robo-advisors are online advisory firms that offer digital investment advice through their website or a mobile phone app. They often use an algorithm to build your portfolio and manage your investments, though several now provide access to human, financial advisors. After completing a short questionnaire to determine risk tolerance, most robo-advisors will develop a recommended investment portfolio and automatically invest your money on your behalf with your permission.
Robo-advisors frequently use exchange-traded funds (ETFs) as the building blocks of your investment portfolio. Most ETFs cost little, which can help you keep more of your money. On top of the ETF costs, robo-advisors typically charge you a fee based on a percentage of the assets they manage for you. The typical annual fee varies from a low of 0.25% to as high as 1% (though rare).
Robo-advisors are among the lowest-cost money management available. If you are a DIY investor, you may save money versus paying a robo-advisor. However, you would build your own portfolio, do your own research, rebalance your portfolio yourself, and handle tax management. Most of the better robo-advisors do that as part of their services. Using a robo-advisor remains one of the lowest-cost ways to manage your investments.
The downside of robo-advisors is the lack of additional services. Competition forced many robo-advisors to expand their services beyond investment management so that you may find access to CFPs for an additional fee. However, the services offered by these professionals are generally limited in scope, and you may speak to a different financial advisor each time you call.
If basic investment advice is all you need, robo-advisors may be worthwhile.
When most people think about a traditional financial advisor, the big-name wealth management firms usually come to mind – Merrill Lynch, Morgan Stanley, Edward Jones, JP Morgan Chase, and Goldman Sachs are among the most recognized. Beyond these household names, thousands of independent wealth management firms have offices across the US, often reflecting the name of the firm’s founder.
With thousands of offices across the US, you should consider hiring a local financial advisor not far from home if meeting in person frequently is important to you.
Advisors at these firms go by many names – stockbroker, financial advisor, financial adviser, registered investment advisor (RIA), financial planning, and wealth managers, to name a few. These titles often come with a variety of designations (e.g., Certified Financial Planner (CFP), Chartered Life Underwriter (CLU), Chartered Financial Analyst (CFA), Chartered Financial Consultant (ChFC), Accredited Investment Fiduciary (AIF), Certified Investment Management Analyst (CIMA), and many more).
Advisors in these wealth management firms may provide financial planning services as part of their offerings. If you work with a financial advisor at one of these firms, be sure you understand how they get paid. Conflicts of interest often come with compensation models.
For example, someone paid on commissions may feel pressured to sell investment products in which they get paid a higher amount. That’s not to suggest that they will do that, but it’s best to find someone with as few conflicts as possible.
If the firm is a registered investment advisor, you should ask if they act as a fiduciary. They must act in their client’s best interests and follow a fiduciary standard. That may seem obvious, but ask to protect yourself.
Like robo-advisors, many firms now offer online financial planning services. Rather than having in-person meetings, a virtual financial advisor will meet with you using an online videoconference service (e.g., Zoom, Skype, etc.). Virtual financial advice is becoming increasingly popular among people who want to avoid traffic headaches and commuting to meet with their financial advisor, which can consume valuable time you can enjoy spending with family or friends.
The best virtual financial advisors provide nearly identical services to traditional financial advisors and will offer similar pricing models to a traditional advisory firm.
Thousands of financial advisors today specialize in working with clients who share common interests, occupations, religious beliefs, and more. By carving out a particular niche, these advisors provide expert knowledge to deliver financial planning services and guidance tailored to the audience they serve.
Numerous websites exist to help people find financial advisors online. But many websites are outdated, and others simply scrape basic data from federal and state securities regulators, which offer little in the way of valuable insights.
On the other hand, the three websites below can help you find the best financial advisors for your particular circumstances based on the abovementioned characteristics – independence, quality, services, and fee structure.
The XY Planning Network is a national organization of over 1,500 affiliated independent financial advisors across the country who primarily serve Gen X and Gen Y clients.
They have a natural selection process that starts with what you’re looking for an advisor to do (a recurring theme). When you enter your criteria into a search box, the website next displays recommended advisors.
You can likely find a firm and advisor who lives near you. If not, all XY Planning-affiliated advisors can work with you online. All XY Planning financial advisors must be fee-only, and most have earned their CFP designation. They have no minimum requirements, and many advisors offer a flat fee, retainer, or subscription-based fee structure.
The Garrett Planning Network has been around since 2000. Like XY Planning, they require advisors to be fee-only, financial planning-focused firms. Searching for an advisor is also a smooth process. You can search by specialty like advice by phone or web, military experience, portfolio management, real estate investing, etc. Once chosen, the second choice breaks it down even further. For example, the options are engineers, legal, and medical professions under the professional category.
Advisors agree to charge clients based on an hourly basis. They must also offer investment management services.
Launched in 2019, Wealthtender offers a fresh approach to finding a financial advisor with easy-to-use directories and guides and a modern interface similar to Netflix.
Unlike find-an-advisor websites that start by asking for your zip code, Wealthtender believes where you live should be a factor but not necessarily the primary factor in determining who you should hire.
For example, you’ll find financial advisors featured on Wealthtender who specialize in various categories, including:
- The field or industry you work in (e.g., technology, energy, real estate, medical professionals)
- The company you work for (e.g., Amgen, Apple, Walmart)
- Your age or life stage (e.g., Gen X, new parents, divorced, young adults, etc.)
- Investing specialties (e.g., crypto, alternative investments, ESG investing)
- Financial planning specialties (e.g., LGBTQ+, immigrants, college funding, etc.)
And if you want to read online reviews of financial advisors to learn what their clients say about working with them, Wealthtender offers the industry’s first financial advisor review platform. (Believe it or not, the Securities and Exchange Commission (SEC) prohibited financial advisors from asking their clients to write reviews until recently.)
Choosing a financial advisor is one of the most critical decisions to help you plan for your financial future. Stories abound about consumers feeling misled by people calling themselves financial advisors. We hope this article guides you through the process of determining the right financial advisor for you.
Remember, it starts with what you want an advisor to do for you. Without that, you’re more likely to make the wrong decision. Following the process will help you make the right choice with the goal in focus.
Wealthtender, the XY Planning Network, and the Garret Planning Network are our top three recommendations.
This article by Brian Thorp of Wealthtender originally appeared on Wealth of Geeks, and was republished with permission.
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