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If you’re remodeling your kitchen, you probably turn to a licensed contractor. Planning an expensive European vacation or Hawaiian honeymoon? You may very well have a travel agent handle the booking.
So, why, when planning your financial future, wouldn’t you seek out professional help?
It’s common sense. Yet only 17% of Americans avail themselves of a financial advisor, the 2019 Invest in You Savings Survey from CNBC and Acorns found — and 75% handle their money themselves.
Picking the right financial professional can take some homework — you’ll want to do your due diligence in terms of research, but also meet up (in person or online) with a potential planner, too. CNBC can help, with its third annual FA 100 list of the nation’s top financial advisory firms.
“Choosing a financial planner is one of the most important financial decisions you will make,” said John Loper, a certified financial planner and managing director, professional practice, at the CFP Board. “This decision takes some research, but partnering with the right financial planner can provide confidence today and a more secure tomorrow.”
First, you’ll have to wade through a thesaurus’ worth of titles and terminology.
Think you need a “financial advisor”? Well, there are financial advisors, and then there are fee-only financial advisors, fee-based advisors, hybrid advisors and dually registered ones not to mention the alphabet soup of advisor certification acronyms, such as CFP, which stands for certified financial planner, and ChFC, or chartered financial consultant.
Here’s a brief look at some of the types of financial advisor you might encounter:
- Financial advisor: This is a generic, catch-all term for financial planners who provide money-related advice in exchange for compensation. Advisors offer an array of services, from investment management and estate planning to income-tax preparation. They generally must be licensed in order to conduct business with the public.
Financial advisors may go by various titles, including wealth manager, investment advisor and financial consultant. Some advisors may be stockbrokers, insurance agents, estate planners and bankers, as well, among other professions.
- Fee-based financial planner: This is an advisor whose income is based on a combination of commissions on financial products they sell and fees for financial planning.
- Fee-only financial planner: An advisor whose earnings come from direct fees to clients, rather than commissions or other sources. They may charge by the hour or with flat fees.
- Hybrid advisor: This advisor has passed the General Securities Representative Exam; has a separate license to give financial-planning advice; and owns their own registered investment advisory (RIA) firm registered with the Securities and Exchange Commission or analogous state securities regulatory authority.
- Dually registered advisor: These advisors wears two hats. They are affiliated with a broker-dealer and are registered under that broker-dealer’s corporate firm.
Then there’s the matter of professional certifications — those aforementioned acronyms. It’s said there are more than 200 designations available to financial advisors but the one you’ll likely see most often is the CFP certification awarded by the CFP Board.
“CFP professionals have the knowledge required to deliver holistic financial planning,” Loper said. “This is important because when choosing a financial advisor, you want them to develop a comprehensive plan and help you find the appropriate path to achieving your financial goals.”
CFPs are working professionals with degrees from accredited colleges who’ve undergone a rigorous program of study, must pass a three-hour exam and adhere to stringent ethical guidelines. They also have to complete 30 hours of continuing education and pay a licensing fee every two years.
Other advisor designations include not only the ChFC from The American College of Financial Services but also chartered financial analyst (CFA), life and annuity certified professional (LACP) and certified divorce financial analyst (CDFA) — each with its own requirements and focus.
“Most people think all financial planners are certified, but this isn’t true,” Loper noted. “Just about anyone can use the title ‘financial planner’ but many of them may not be required to put your best interests first.”
Where to find a potential advisor match?
First, ask around — word-of-mouth recommendations from family, friends and colleagues can be invaluable as a first line of vetting. Then, there are online resources, as well. The CFP Board, for example, offers a searchable online database of CFPs at LetsMakeAPlan.org and the Institute for Divorce Financial Analysts offers one for CDFAs at Institutedfa.com/find-a-cdfa.
Speaking of databases, you can further vet a financial advisor by searching for regulatory violations, customer complaints and other adverse information at two online resources: BrokerCheck, from the Financial Industry Regulatory Authority, or FINRA, and the Investment Adviser Public Disclosure website from the SEC.
Once you’re actually speaking to an advisor, you should have a list of questions ready. Here are 10 recommended by the CFP Board:
- What are your qualifications and credentials?
- What services do you offer?
- Will you have a fiduciary duty to me?
- What is your approach to financial planning?
- What types of clients do you typically work with?
- Will you be the only advisor working with me?
- How will I pay for your services?
- How much do you typically charge?
- Do others stand to gain from the financial advice you give me?
- Have you ever been publicly disciplined for any unlawful or unethical actions in your career?
This is not the time to be shy, according to Loper.
“It is important to interview the advisors you are considering to find the one who is the best fit for you,” he said. “Ask them about their qualifications and credentials, and if they have a fiduciary duty.”
CFPs, for example, commit to act as a fiduciary at all times when providing financial advice, Loper added. That means they “must place your interests first when providing financial advice — even when they have a conflict of interest,” he said. Other financial advisors may operate only under a so-called suitability standard of care, meaning their recommendations to clients need only be suitable, and not necessarily the most advantageous.
“You should also check to see if others gain from the financial advice they give you, as well as their approach to financial planning,” Loper said.