How to Choose a Financial Adviser

financial adviser

Financial advisers help people manage their money and reach their financial goals. They can provide a range of financial planning services, from investment management to budgeting guidance to retirement planning. Picking the right financial adviser for your situation is key — doing so means you won’t end up paying for services you don’t need or working with an adviser who isn’t a good fit for your financial goals.

But first, what is a financial adviser? Although most people would use an “o,” we purposely spell adviser with an “e” when we talk about investment advisers. That’s because the laws that govern this type of investment professional spell the title this way.

Although the terms sound similar, investment advisers are not the same as financial advisors and should not be confused. The term financial advisor is a generic term that usually refers to a broker (or, to use the technical term, a registered representative). By contrast, the term investment adviser is a legal term that refers to an individual or company that is registered as such with either the Securities and Exchange Commission or a state securities regulator. Common names for investment advisers include asset managers, investment counselors, investment managers, portfolio managers, and wealth managers.

If you are considering a financial adviser, you can check on his or her background here: BrokerCheck. I highly recommend you do this before you make a decision to work with an adviser.

1. What financial services do you need?

Identify why you’re looking for financial help by asking the following questions:

  • Do you need help with a budget?
  • Do you want help investing?
  • Would you like to create a financial plan?
  • Do you need tax help?

Your answers to these questions will help determine what kind of financial adviser you’ll need. If you just want assistance investing, a broker can help. But, if you have a complex financial life you may want to work with a traditional financial adviser.

2. Learn which financial advisers you can trust

Financial advisers go by many names: investment advisors, brokers, certified financial planners, financial coaches, portfolio managers. There are even financial therapists. So who does what — and who can you trust?

Since some of the most common titles advisors use, including the term “financial advisor” itself, aren’t tied to any specific credentials, don’t assume that someone who uses an official-sounding title has any specific training or credentials. Anyone who give investment advice (which most financial advisers do) must be registered as an investment adviser with either the U.S. Securities and Exchange Commission or the state, depending on their assets under management.

Some financial advisors have a fiduciary duty to their clients, meaning they are obligated to act in their client’s best interest rather than their own. Always work with a licensed, registered fiduciary — preferably one who is fee-only, which means the advisor is paid directly by you and not through commissions for selling certain investment or insurance products. Certified financial planners have a fiduciary duty to their clients as part of their certification.

Fee-Only Financial PlannerFee-Based Financial Planner
Paid directly by clients for their services and can’t receive other sources of compensation, such as payments from fund providersAct as a fiduciary, meaning they are obligated to put their clients’ interests firstPaid by clients but also via other sources, such as commissions from financial products that clients purchaseBrokers and dealers (or registered representatives) are simply required to sell products that are “suitable” for their clients

No matter what title, designation, certification or license an adviser claims to have, it’s on you to vet the adviser’s credentials and experience. Always research an adviser’s background by looking up the firm’s Form ADV before you agree to work with them. You can also review an adviser’s employment record (and look for red flags like disciplinary actions) on FINRA’s BrokerCheck website.

3. Vet the financial advisor’s background

If you elect to work with a traditional financial advisor, you’ll need to vet them. Verify any credentials they claim to have and check to see if they’ve had any disciplinary problems such as fraud. It’s not a bad idea to do this as well if you work with an online financial advisor, but most will do the vetting for you.

We also have a list of 10 questions you should ask a financial adviser at 10 Questions to Ask Before You Hire a Financial Adviser — including whether they hold to a fiduciary standard, what their fee structure is and how frequently you’ll be communicating.

Summary. Be Careful and Be Informed.

Cy Simms always said: an educated consumer is my best customer. This are words to live by epically when considering a financial adviser whom you will trust for advice that is best for you.

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Todd Murphy

Todd Murphy is an estate planning lawyer in Morristown New Jersey where he helps modern families of all ages plan for the future.

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