If you want to learn how to find a financial advisor you can trust, you’ve come to the right place.
In this article, I’ll explain how to find a financial advisor and why it’s important to narrow your search to fee-only fiduciaries.
I’ll also explain how to choose a financial advisor once you’ve narrowed your options.
Table of Contents
- Determine Whether You Need a Financial Advisor
- Figure Out What Service You Need
- Learn the Meaning of “Fee-Only Fiduciary”
- Use These Resources To Search for Fee-Only Fiduciaries
- Ask Friends and Family for Recommendations
- Interview Potential Financial Advisors
- Consider Hybrid and Robo-Advisor Solutions
1. Determine Whether You Need a Financial Advisor
Before you learn how to find a financial advisor, start by considering whether you need one at all.
According to money expert Clark Howard, there’s a good chance you don’t need a financial advisor if:
- You’re at least 20 years away from retirement.
- You have less than $50,000 to invest.
“The reality is, the biggest problem for most people is just getting the money into an account and getting it invested,” Clark says. “For most people starting out, you don’t need professional advice.”
Full-service financial advisors are best for people with complex financial situations — those nearing retirement and/or those with enough assets to fuss with things like estate planning.
If you plan to retire at 65, for example, and you’re younger than 45, Clark wants you to be in “accumulation mode.” Save and invest as much as you can.
One of Clark’s favorite recommendations for financial advisors is Vanguard’s Personal Advisor Services. It’s one of the more accessible ways to get full-service financial advice. But it requires a minimum investment of $50,000.
“Only when you’ve got enough money that you’ve got to figure out things like paying for your kids’ college do you start to need Personal Advisor Service or the Schwab equivalent,” Clark says. “Before that, it’s really just about accumulating money.”
2. Figure Out What Service You Need
If you fit the description of someone who could use a financial advisor, you may be tempted to start searching immediately.
But it’s a good idea to stop and consider what service(s) you actually need from an advisor. Here are some of the most common services:
- Financial planning: True financial planning involves much more than investing. It’s a holistic look at your financial life including your goals and what you need to do to achieve those goals. It can include things like your insurance choices, tax strategy and estate planning.
- Investment advice: If you’re just looking for professional help managing your portfolio, consider using a robo-advisor. But you should keep in mind that, often, the best investment decisions are part of ongoing financial planning and take into account things like your goals and age.
- Retirement planning: A financial advisor who offers this will coordinate your income (investments, Social Security, pensions, etc.), taxes and your planned retirement date to make sure you have a steady path to paying your bills for life.
- Tax help: Ideally, your tax strategy is connected to your overall financial picture. However, tax work can be pretty specialized. If you’re just looking for tax help, the solution may be a good Certified Public Accountant (CPA).
3. Learn the Meaning of “Fee-Only Fiduciary”
A fiduciary financial advisor is legally required to prioritize your goals and best interests above their own financial gain.
However, some fiduciaries are allowed to earn commission. They’re sometimes called “fee-based” fiduciaries.
You want a fiduciary who makes money only through fees, whether that’s as an annual percentage of assets under management (AUM), an hourly rate or a project-based cost.
Clark is adamant that if you hire a financial advisor, you should use a fee-only fiduciary and no other type — ever.
4. Use These Resources To Search for Fee-Only Fiduciaries
So you know to look for the right kind of financial advisor: a fee-only fiduciary. But do you know how to find someone with those qualifications?
The Garrett Planning Network is a great place to start. Enter your ZIP code and you’ll get a list of fee-only fiduciaries near you.
Garrett’s member advisors are also required to be accessible, meaning they can’t reject clients based on income or assets. They provide financial planning and investment advice on an hourly, as-needed basis.
If you’re looking for an ongoing relationship with a financial advisor, the National Association of Personal Financial Advisors (NAPFA) may be a better resource. NAPFA requires its advisors to be fee-only fiduciaries. The downside is that NAPFA advisors may require minimum portfolios of $500,000 or more.
You can also use the Financial Planning Association, whose members are all Certified Financial Planners (CFPs). CFPs are required to be fiduciaries. But you’ll still need to verify the person you’re considering is a fee-only advisor.
5. Ask Friends and Family for Recommendations
I once heard someone compare hiring a financial advisor to hiring a Chief Financial Officer for your family. It’s an apt description.
So getting a recommendation from someone you trust can be immensely helpful in identifying potential candidates.
It can be hard to fully understand what it’s like to work with someone and evaluate their personality when they’re trying to secure you as a client.
Just make sure that any recommendations you look into are fee-only fiduciaries. And take the time to make sure they’d be a good fit for your financial management style and personality as well.
6. Interview Potential Financial Advisors
Once you’ve identified one or more financial advisors, it’s time to evaluate your candidates.
Hopefully, you’ve filtered your candidates so that you’re looking only at fee-only fiduciaries. But it’s a good idea to double-check. You can ask questions to understand how they get paid:
- Are you a fiduciary?
- Do you get paid by anyone other than your clients?
- Are there any conflicts of interest I should be aware of?
- How do you charge for your services?
There are also several websites you can use to check on his or her credentials, customer complaints and compensation model.
Form CRS: Ask your candidate for this. It will contain any disclosures about compensation. The nice thing about Form CRS — or Client Relationship Summary — is that it’s short and standardized. It includes any investment minimums as well as the types of investment products an advisor uses. Most financial advisors include a link to Form CRS somewhere on their website.
U.S. Securities and Exchange Commission: Make sure you’re going to the Investment Adviser Public Disclosure website and not just SEC.gov. The former will allow you to find the companies (past and present) that your potential financial advisor works with. You can also find out whether the SEC has taken any disciplinary action against them. Form ADV Part II is where the advisor has to reveal any potential conflicts of interest.
Financial Industry Regulatory Authority: You can find the same kind of information on the FINRA website including state licenses, years of experience and any official complaints from clients.
Consider the Personality and Investment Philosophy of Your Financial Advisor
Once you’re sure the candidate you like is a qualified, fee-only fiduciary without a history of complaints, it’s still important to make sure they’re a good match for you.
You don’t need to be best friends with your financial advisor. But you do need to feel comfortable communicating with them.
Asking them further questions can help you find out how they communicate. Aside from their personality and how they’ll charge you, you may want to know:
- Investment philosophy
- Minimum investment amount
- Area(s) of expertise or specialty
- Typical communication frequency
- Where they’ll keep your money (ideally with a third-party custodian such as Fidelity, Vanguard or Schwab)
It’s not a bad idea to ask for references. Keep in mind that privacy regulations may prevent financial advisors from giving you names. Regulations also prevent them from using testimonials.
7. Consider Hybrid and Robo-Advisor Solutions
Want to know how to find a financial advisor you can trust while also paying far less in annual fees?
Clark is a big fan of Vanguard’s Personal Advisor Services. You’ll pay a 0.35% annual fee. You’ll get access to a fiduciary who can offer the full scope of financial advisory services.
One of the reasons that Vanguard can keep the costs so low is that it uses its entry-level digital advisor (or robo-advisor) to handle your investment portfolio.
If you’re looking only for investment advice, a robo-advisor could be a perfect solution for you.
The best robo-advisors do a nice job of putting you into a well-diversified portfolio that’s compatible with your age, risk tolerance and retirement plans. They’re also relatively inexpensive. You’ll usually pay between 0.25% and 0.50% in annual fees, plus about 0.10% in expense ratios from the funds in which you invest.
Robo-advisors are excellent set-and-forget investment options for those who are too many years from retirement or don’t have enough assets to need a full-service financial advisor.
Learning how to find and choose a financial advisor is mostly about finding the right financial advisor.
At Clark.com, we think it’s vital to hire a fee-only fiduciary if, in fact, you need a financial advisor at all. Take the time to understand how financial advisors get paid before you evaluate who you want to hire.