How to find the right financial advisor for you (Hear me out)

With the beginning of the new year, it’s common for many of us to make resolutions, foremost being to get better with money.  If you are thinking about or are actively looking for a financial advisor, your search may feel daunting as the options are vast, and the stakes (and potential pitfalls) are great.  (NOTE: For the sake of simplicity, I use the term financial advisor and financial planner interchangeably.)  Where to start?  What to look for?  Whom to trust?  I’d like take this opportunity to give you the lay of the land; where to focus your search; what to look for.

 

Financial Service Industry

The financial service industry is a massive umbrella that houses everything from insurance companies to banks to Registered Investment Advisor (RIA).  Below are some of the big players within key segments of the industry.  

·       Banks: Morgan Stanley, Bank of America (Merrill Lynch), JP Morgan, Wells Fargo, PNC Financial, Citigroup

·      Insurance: Primerica, Allianz, Prudential, Axa

·       Brokerage Firms: Schwab, Fidelity, E*TRADE

·       Broker-Dealer: Edward Jones, Ameriprise Financial, Raymond James, Northwestern Mutual Investment Services, Equitable Advisors,

·       RIA (Registered Investment Advisor):  Edelman Financial Engines, Hightower Advisors, Creative Planning

Making things more complicated and difficult for the average person looking for sound, less biased financial advice is the fact that many of these companies have a mixed business model; they sell (in-house) products and services, including financial advice.  It’s not uncommon that their financial advisors recommend to clients expensive, in-house products (e.g., variable annuities, whole life insurance, high load mutual funds).  Taking their advice often leaves clients financially worse off:

·      Clients pay a fee (albeit often lower vs market rate) for highly conflicted advice.  (This is the sales hook!) 

·      Clients pay costly commission for typically inferior (in-house) insurance and investment products (e.g., high load mutual funds).  

·      Clients often slowly, but surely, end up losing tens, if not hundreds, of thousands of dollars due to loss compounding as their hard-earned money is locked up in high-surrender charge insurance products and/or languishes in costly, low performing mutual funds.   

Although it may seem convenient to go with one company for all your financial needs, it’s best to get your financial products and advice from different companies.     

Where to look for a fee-only advisor

One of the best places to look for fee-only financial advice is in the Registered Investment Advisor (RIA) space.  (Full Disclosure: Women’s Wealth is an RIA.)  For many of these firms, the main focus is on providing wealth management and financial planning advice rather than selling products.  Below are key websites to look for an RIA that best suits your profile and needs. 

 

Website for RIAs	Typical Business Models
https://www.xyplanningnetwork.com	Asset Under Management (AUM); subscription or retainer; project-based; hourly (some)
https://www.napfa.org	Asset Under Management (AUM); subscription or retainer; project-based
https://www.feeonlynetwork.com	Asset Under Management (AUM); subscription or retainer; project-based
https://www.garrettplanningnetwork.com	Project-based; hourly (mostly)

 

First, visit these sites and use their search filters to help you narrow down your search based on criteria most important to you personally, professionally and financially.  As you (re)search, try to aggregate a list of 5-10 potential advisors whose websites, personal and professional journey, values and service/fee model resonate most with you.  If you’re stretched for time, consider stack-ranking your list of potential advisors starting with the “most likely fit.”

Second, deep dive into the websites of your “most likely fit” RIAs.  This will help give you a better sense of the firm; their financial advisor(s); their typical client; their services/fees; their values; their personal and professional experience; their educational and professional credentials; etc.  

Third, take advantage of the free consultation meetings and schedule them with your top 3-5 RIAs/advisors.  (NOTE: Most advisors offer free 20- to 60-minute consultation meetings.)  For a more productive meeting, consider aggregating all your assets (e.g., bank account, 401k balance, Roth IRA balance, market value of home) and liabilities (e.g., mortgage, student loans, card loans) in an Excel spreadsheet.  Doing so will help give you and your prospective advisors a better sense of where you are financially.  Also, to help you gather relevant information to make your final decision/selection, consider reviewing the CFP Board’s Top 10 Questions to Ask a Financial Advisor.   Choose a handful of questions most meaningful to you in vetting prospective advisors.     

     

What your HEAD should look for in a fee-only advisor 

When researching and interviewing financial advisors, it’s important to understand the different “flavors” of advisors (simplistically defined – below).  

·      Wealth advisor’s primary focus is on managing investment portfolios while the secondary focus is on financial planning (e.g., debts, insurance, employee benefits optimization, estate planning).  This option is typically best for those who have a large portfolio (multimillion dollar), but don’t necessarily have the time, energy and/or interest in managing it. 

·      Financial advisor typically split her/his focus between managing investment portfolios and financial planning.      

·      Financial planner typically focuses on financial planning (ideally holistic – goals, investments, debts, insurance, etc).   

Knowing the main focus of each professional will help give you a better sense of whom best to support you.   

In terms of professional credentials and whatnot, here are some letters and terms you’d want in a financial advisor:

CFP® Designation – This is the gold standard for those looking to give or get financial advice.  (NOTE: The CFP® designation specializes in financial planning while the CFA designation specializes in portfolio management.  For most people, the CFP® designation is more relevant as it takes into account a larger area of their financial life (e.g., debt, insurance, investments, retirement) vs just their investment portfolio.)    

Fee-only vs fee-based – Many think these two terms are one-and-the-same.  They are not.  A fee-only financial advisor is compensated for advice (aka service) given to clients. Meanwhile, a fee-based advisor is compensated for advice to clients and via commission on product sales.  (Go with a fee-only advisor!  Keep advice and product sales separate to limit potential conflicts-of-interest.)    

Fiduciary – This means that the advisor is legally bound to give advice/act in your best interest.

Professional Experience – Consider someone with at least 5+ years of professional experience.  Personally, I’d recommend that you choose a professional who has also worked and invested through one major market downturn, at least.  This gives them valuable experience and insight into what a market downturn looks and feels like so they can tailor their advice appropriately to your needs and risk tolerance.        

No regulatory disclosures.  Here’s where to check on whether or not a prospective advisor has disclosures: https://adviserinfo.sec.gov/.  You want an advisor with no disclosures.  

         

What your HEART should look for in a fee-only advisor

Interestingly, it’s often simpler to gauge a prospective advisors’ fit based on the criteria of the head rather than the heart.  Below are some questions to reflect upon in your search for the right advisor for you. 

·      Is this person someone like me?

·      Can this person relate to someone like me?

·      Can this person hear someone like me? 

·      Can this person help someone like me? 

·       Would I enjoy having coffee with this person? 

Ultimately, you want to use your heart to gauge your prospective advisors’ heart (or integrity).  Ideally, both your head and heart will arrive at the same conclusion.  However, should they differ, my personal default is to go with my heart.  While the head deduces, the heart perceives.  In my opinion, integrity and care trump credential and capability. (You shouldn’t care how capable someone is until you can sense that they care about you.)  

 

Final thoughts…     

Finding the right financial advisor to partner with and support you in your journey towards greater freedom and peace-of-mind is a highly consequential decision.  Although the financial service industry is vast and fraught with conflicts-of-interest, there are steps you can take to protect yourself.  Please do your due diligence.  A caring and capable financial advisor is worth her/his weight in gold while a bad one can set you back for years; for decades; forever.  Ultimately, you want to find someone who has integrity and is capable.  Ultimately, you want to find someone who is a human being and sees you as one, too.