The Informed Investor
3 Steps to Find a Financial Advisor
You may find it is time to hire a financial advisor to help plan for your future. Perhaps your financial circumstances have changed. Maybe you’ve received a large inheritance, earned a significant raise, had a child, or got married. Or you may simply be thinking about retirement and wondering how and when to make it happen.
You know it’s time to hire a financial advisor, but where do you start? If you’re like many people, you may not entirely trust financial advisors. You want to be sure you choose someone who is honest and transparent. You also need to choose someone whose expertise aligns with your needs. As of 2023, there were 272,190 personal financial advisors in the United States; finding the right one for you can feel like an overwhelming task.
Fortunately, with the right methodology and some handy tools, it is possible to narrow down this vast pool of candidates to a few viable options.
Paths of Least Resistance
When faced with a difficult decision, it’s human nature to take the path of least resistance. We tend to gravitate toward the easiest solutions, the simplest answers. We also tend to seek safety and comfort. These tendencies may serve us well in some situations of danger, but they are a hindrance when it comes to choosing the appropriate financial advisor.
With so many financial advisors to choose from, chances are you won’t stumble upon the right one by chance or through a five-minute online search. Instead, the best way to find a financial advisor to suit your needs is to plan, understand your criteria, and conduct a logical and curated search.
First, let’s discuss various ways people find financial advice.
Method 1: Family and Friends’ Recommendations
Asking your friends and family members for personal recommendations may be simple, especially if they’re happy with their financial advisors, but there are some things to keep in mind.
Getting a referral to an advisor from a friend may be a great starting point but it is imperative to research further. Family and friends may not fully understand how their financial advisor operates. They may fail to grasp crucial details, such as how their financial advisor is paid, whether they are committed to a fiduciary standard of care, or if they are dually registered as an investor advisor/broker that sells products. Take a closer look at these aspects.
This lack of understanding isn’t your friend’s fault; far too often compensation for financial advisors is unnecessarily complicated or shrouded in layers of legalese. Better to do your research, with clear parameters of what you want from a financial advisor. Your financial situation is unique and should be treated as such.
Method 2: Financial Advisors in the Media
Have you ever turned on the TV, flipped to a news program, and watched a segment with a guest financial advisor? Or maybe you’ve turned on a radio program, and the announcer is interviewing a wealth manager about the stock market or her new book. These “experts” and “guests” appear with some regularity in the media. If they’re on a program or appearing in the local newspaper, they must be somewhat accomplished and trustworthy, right?
Not necessarily. Often, when financial advisors appear in the media, they are sponsoring the show/article/segment or paying money to be there. Even if the guest financial advisor is reliable and competent, this person may or may not be for you.
If you’re thinking about contacting a financial advisor you encountered in the media, proceed with caution and conduct your research. Understand that they may not be as astute as they seem on the TV or radio program.
Method 3: Pamphlets and Promises
It’s not uncommon for people purporting to be financial advisors to send out mass marketing campaigns that involve attractive incentives. In exchange for just a quick, one-hour meeting, they might entice you with a free steak dinner, complimentary tickets to a concert or basketball game, or a six-month wine club membership. On the surface, these seem like great perks, but I advise you to run, don’t walk, away from these so-called deals.
It’s likely this meeting will take place with a professional sales representative—someone trained to sell financial services or connect you with a financial advisor within their company. They may have perfected their sales pitch so this sounds like an opportunity you can’t miss, when in reality, they may be representing a company that is based on a system of product sales commissions or delivering incompetent financial advice that is purely profit-driven. When it comes to searching for a financial advisor, you should set the terms and reach out to potential candidates, not the other way around.
Method 4: Internet Search
Many investors pull up Google, type in “best financial advisors near me,” and see what comes up. After all, this is how we conduct most of our searches, whether we want to know the local weather forecast or try out a new restaurant.
However, this approach is problematic when searching for a financial advisor. You’ll have to sift through a lot of paid advertising and sponsored content before financial advisors organically crop up, and even then, these advisors may not be suited to your needs. The financial advisors and companies at the top of the search pile will likely be those with the largest budgets.
Occasionally, you might see a list of “top advisors” or “five-star advisors.” This may be a legitimate list…or it may be even more sponsored content. As a financial advisor, I regularly receive invitations to purchase fake awards or buy advertising space on lists. I suggest viewing these lists with a skeptical eye, keeping in mind that the individual financial advisors listed may simply have money, not merit.
A Better Approach
By now, you might be wondering how, exactly, to begin your search for a financial advisor. How can you avoid these numerous pitfalls and advertising schemes? Fortunately, it’s not as difficult as you might fear. Consumers now have access to several reliable databases which list very specific types of advisors and do not deal with sponsored content.
I advise taking the following three steps:
1. Determine What You Need
Before diving into your search, it’s essential to determine what type of financial guidance or support you need. Are you only looking for financial planning, or are you also interested in investment management? Do you need help with estate planning? Retirement planning? Tax planning?
2. Determine Your Criteria for a Financial Advisor
Someone may call themselves a financial advisor, wealth manager, investment advisor, or something similar, but those terms may have little meaning. Instead of emphasizing titles, I recommend focusing on the financial advisor’s background, credentials, and compensation structure. For example, is the advisor a CERTIFIED FINANCIAL PLANNER® professional (CFP®)?
The ideal financial advisor for many people is an individual or firm with these qualities:
- Qualified professional credentials such as the CERTIFIED FINANCIAL PLANNER® certification.
- Operates independently, meaning their advice isn’t compromised by outside influences.
- Upholds a fiduciary standard of care.
- Operates under a fee-only compensation structure.
3. Use Trustworthy Databases
You can find suitable matches by conducting searches with trustworthy databases. Instead of doing a broad internet search, consider using specific, curated databases that can help you find qualified financial advisors or firms, without all the sponsored content. Several databases exist that are independent and reliable.
Use NAPFA’s Find an Advisor online search tool to find local, fee-only financial planning firms.
The “Find a CFP® Professional” online search tool finds local CERTIFIED FINANCIAL PLANNER® professionals (CFP®).
Financial Planning Association
Use the FPA PlannerSearch® online search tool to find local CERTIFIED FINANCIAL PLANNER® professionals (CFP®).
CEFEX® provides a registered company list of certified investment advisory firms.
Use Fi360’s fiduciary-centered online search tool to find investment firms registered with CEFEX®.
Dimensional’s Find an Advisor online tool identifies local firms with an evidence-based investment philosophy.
The Find Your Independent Advisor online search tool, created by Charles Schwab, locates independent investment advisory firms that use Schwab as a custodian.
Use the “Find Green Businesses” online search tool to find an individual financial advisor or financial planner to help with socially responsible investing.
Many useful tools exist today to help you navigate the path to a competent, suitable, and trustworthy financial advisor or firm. Before diving into these searches, develop a clear vision of what you expect from a financial advisor, and how this individual can assist you with your unique financial situation. This is a major decision, and a simple Google search or a recommendation from your golfing buddy may not lead to the results you want. Invest your time and effort in your search for a financial advisor, and you can expect to reap the rewards of a trusted relationship with a good financial advisors for years to come.
Learn more about David Bromelkamp
Hello! I’m Dave, the founder and chief executive officer of Allodium Investment Consultants, located in Minneapolis, MN. I am also the author of AdvisorSmart for the Individual Investor: Your Guide to Selecting a Financial Advisor to Get Better Financial Advice. I am dedicated to educating individual and institutional investors about financial planning and investing. When I’m not helping people make investment decisions, I enjoy traveling, hiking and spending time with my wife and family.
The information provided is for educational purposes only and is not intended to be, and should not be construed as, investment, legal or tax advice. Allodium makes no warranties with regard to the information or results obtained by its use and disclaim any liability arising out of your use of or reliance on the information. It should not be construed as an offer, solicitation or recommendation to make an investment. The information is subject to change and, although based upon information that Allodium considers reliable, is not guaranteed as to accuracy or completeness. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment.