HOW TO CHOOSE A FINANCIAL ADVISOR

Your financial advisor will be one of your key allies in moving your financial life forward. A bond of trust and mutual respect is absolutely essential: After all, this is someone with whom you’ll be sharing confidential – and sometimes highly personal – aspects of your life. But how do you find a good financial advisor, someone who will always put your interests ahead of everything else and help you achieve your financial goals?

Finding the right advisor can seem daunting, especially with so many options ranging from traditional financial advisors to modern, fee-only advisors. We’ve identified six questions to ask potential advisors to help you choose the right one for you.

Even if you already have an advisor, consider asking them the following questions, too – to confirm you’ve made the right choice. And if you decide that you haven’t, remember that you can always change advisors at any time to find the right fit for your needs.

1. ARE YOU A FIDUCIARY?

Fiduciaries are required to place their customers’ best interests ahead of their own. Registered investment advisors and their representatives are required by law to adhere to a fiduciary standard. This means they have a legal obligation to act in your best interest, providing investment advice that aligns with your financial situation and goals.

Note: Some financial advisors are “dually registered,” meaning they can act as both stockbrokers and Investment Advisor Representatives. However, you should keep in mind that SEC registration does not imply a certain level of skill or training, so continue to do your due diligence and ask additional questions to ensure you're choosing the right financial advisor. For example, always ask an advisor about any conflicts of interest – which must be disclosed – so you can make an informed decision.

2. WHAT ARE THE TOTAL COSTS I WILL PAY TO WORK WITH YOU?

Note the specific phrasing of this question.

Don’t simply ask an advisor what their fee is because what they earn is not the same as what you’ll pay. In addition to your advisor’s fee, you want to know the costs of buying the investments your advisor recommends to you to avoid getting a pricey bill for market transactions. These costs might include fees for financial products like mutual funds or insurance products, transaction fees or other hidden charges.

Consider seeking out fee-only advisors, who are compensated solely by the fees you pay and not by commissions from selling financial products. Unlike some traditional financial advisors who may earn commissions on financial products they sell, fee-only advisors may operate with fewer conflicts of interest. By working with a fee-only advisor, you can ensure that your adviser is acting in your best interest without the influence of commissions from financial products.

In any case, your advisor should provide you with all information about fees and costs in advance and in writing to help inform your decision. Do not consider any advisor who does not explain all expenses to you openly and clearly. Transparency is key when it comes to understanding how your personal financial advisor is compensated and how it affects your investment portfolio.

3. WHY DID YOU BECOME A FINANCIAL PLANNER, AND HOW LONG HAVE YOU BEEN DOING THIS?

OK, that’s more than one question. And here are a few more related ones you may want to ask the financial advisor:

• How long have you been with this firm?
• How many other firms have you been with?
• Are you happy with your current career path?

Whichever way you choose to frame this line of questioning, your goal is to be assured you find an experienced financial professional whose career is stable and who is doing this job for the right reasons. A financial planner who is dedicated to their profession is more likely to provide you with sound financial advice tailored to your needs.

Ask about their professional credentials, such as whether they are a Certified Financial Planner^® professional, Chartered Financial Analyst or Chartered Financial Consultant. Membership in professional organizations like the Financial Planning Association can also indicate a commitment to ongoing education and ethical standards in financial services.

It is important to ask these questions of a financial advisor rather than make assumptions about their experience. Remember, age can be misleading: Many advisors are career changers, and their age may be deceiving as they’ve actually been in the field for only a year or two. By the same token, someone who appears quite young can have nearly two decades of experience as a financial advisor because they are passionate about what they do and driven to help people achieve their financial goals.

Stability is equally important. Financial advisors are sometimes known to move from job to job, often because they’re offered a bonus from another firm. You want stability from your advisor and to feel secure that they won’t leave any time soon. Frequent moves could indicate a lack of commitment or dissatisfaction, which might not bode well for your long-term financial planning.

Keep in mind that at many Wall Street companies, financial advisors are on a career track. They may be serving clients right now, but they might not have been in that role six months ago – and they might get promoted to another position in less than a year. Ask the candidate if they aspire to join the firm’s management team. While it is encouraging that this is a driven and capable individual, it means you’ll be assigned a new advisor when they advance in their career. Usually, this is someone you don’t get to choose. Understanding your advisor’s aspirations can help you both mitigate any potential disruption to your financial plan.

You want to hire a financial advisor who loves being a financial advisor. It’s their calling, their passion. That helps give you confidence that you’ll enjoy consistency and authenticity – and the longer you’re together, the better that advisor can serve you.

4. IF SOMETHING HAPPENS TO YOU, WHAT HAPPENS TO ME?

On occasion, your financial advisor will be on vacation. Worse, they might be hospitalized. And eventually, your planner will retire. Who will serve you when your financial advisor is not available or able to help you?

It’s not enough that someone else can return your phone call. You want to know that others in the firm are as familiar with your advisor’s recommendations and portfolio strategy as your advisor is. This can only occur if the firm operates as a team, with a firmwide approach adhered to by all the professionals in the organization. Firms that emphasize collaboration among financial professionals ensure that your financial plan continues smoothly, even in your advisor's absence.

In many firms, each advisor operates independently. In such places, no other advisor could explain the methodology or rationale your advisor used to manage your investments. If your traditional financial advisor operates independently without support from a larger team, you might face challenges when they are unavailable.

You want to know that, even in the absence of your advisor, you and your money will be cared for seamlessly, with no disruption. And if they are a sole practitioner, you need to ask your financial advisor how you will be served during the inevitable occurrences when, literally, there is no one to answer the phone. Ensuring continuity is crucial for the management of your investment portfolio and financial products.

5. WHAT KIND OF CLIENTS DO YOU WORK WITH?

Before you describe yourself and your circumstances, ask the financial advisor to answer this question. If their typical client fits your description, the advisor could be a good fit for you. You want an advisor who has extensive experience working with people with similar circumstances and concerns.

For instance, some advisors specialize in working with high-net-worth individuals requiring advanced financial services, while others may focus on clients just starting their personal finance journey. Is this advisor well-versed in the tax treatment for clients in your wealth bracket? Do they have the resources to provide comprehensive wealth management services, including access to professional estate planning attorneys? Are they willing to coordinate with any other professionals you might have, such as tax professionals or insurance agents?

Everyone’s financial needs are different, and we believe that everyone should be able to receive the financial advice that’s best suited for them. So continue to ask questions to be sure you find an advisor who can accommodate your unique situation. Whether you're planning for retirement, managing investments or setting future financial goals, your advisor should have the expertise relevant to your financial situation and the flexibility to serve your needs as they change.

6. WHAT IS YOUR INVESTMENT STRATEGY?

As we noted above, financial advisors are not interchangeable with investment managers. A financial advisor must be able to clearly articulate a strong point of view regarding how money should be invested. An advisor who can’t describe this clearly and succinctly, or who says, “it depends on the client,” is likely not a person who serves as a true advisor. Instead, they may merely be an order taker – someone who just does what the client tells them to do, or they may offer up a one-size-fits-all solution.

That’s not what you want from a financial advisor.

On a similar note, a financial advisor with experience navigating various market cycles can offer insights into how their investment strategies have withstood past economic downturns. If not, why – and when – did they change their advice? It’s important to discuss this because advisors are unlikely to change their investment strategy unless that strategy isn’t working, and this may indicate a tendency to respond emotionally to market events.

A financial advisor should be playing the long game and recommending personalized investment strategies, rather than trying to time the markets or getting jittery when the markets suffer a correction. It is better to have a long-term growth plan, rather than having to question your financial advisor every time something happens in the markets, economy or political climate.

Of course, there’s nothing wrong with tweaking a portfolio – say, swapping out one investment for another. But simply diversifying a portfolio is very different from shifting from options trading to municipal bonds to mutual funds. An advisor whose advice lacks long-term consistency should be removed from your consideration. You want an advisor who follows a disciplined investment strategy aligned with your financial goals and risk tolerance.

One related point: Be aware of the difference between investment managers and financial advisors. Investment managers tend to limit their advice to investments; they typically don’t provide help with other aspects of your personal finances. Financial advisors, by contrast, can provide comprehensive investment advice – and in addition to investments, they may be able to help with guidance and education on tax planning, insurance needs, retirement planning, estate planning, Social Security, employee benefits, real estate and mortgages, leasing or buying cars, elder care issues and more. Unlike some investment managers who focus solely on investment products, these advisors typically offer holistic financial services that encompass a wide range of financial products and strategies tailored to your needs.

Some advisory firms will offer a financial advisor that’s supported by the expertise of an investment management team so they can provide you a more integrated approach.

Finding a good financial advisor means creating a comprehensive financial plan for you based on your goals, risk tolerance and circumstances – the same factors used to help determine the best investment strategy for you. Investment managers typically skip the other types of planning and immediately jump straight to investment ideas. We believe you are served best by creating a plan before choosing specific investments.

A financial professional who focuses on holistic financial planning can help you make informed financial decisions that align with your long-term objectives. This approach can ensure that all aspects of your personal finances are considered, leading to more effective strategies for achieving your financial goals.

DUE DILIGENCE WHEN CHOOSING A FINANCIAL ADVISOR

Finding the right advisor means partnering with someone who maintains a consistent, disciplined approach to help you reach your financial goals. These are just a few questions to ask an advisor as you begin your search. Additionally, you can view the financial planner’s regulatory history on the SEC.gov website.

We hope you’ll consider a planner with Edelman Financial Engines in your list of candidates. To get in touch with one of our fiduciary advisors, please contact us or call (833)-PLAN-EFE.

The co-hosts of Everyday Wealth are not employees or clients of EFE. They receive fixed cash compensation for acting as host, and have an incentive to endorse EFE and its planners.