How to Find a Financial Advisor You Can Trust

Advertising Disclosure This article/post contains references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services

The value of hiring a financial advisor can be similar to the logic as hiring a certified accountant. A financial advisor can help you set and reach financial goals that can substantially increase your wealth and decrease your debt. Financial advisors also guide you through the maze of rules, jargon, products, and decisions that is finance.

But first: You have to know what you’re actually looking for.

The Short Version:

  • Hiring the right financial advisor can save you the enormous time and effort required for financial planning and in dealing with financial surprises — regardless of how financially literate and confident you are in making your own investments.
  • There are particular milestones in life (retirement, marriage, etc.) when hiring a financial advisor can be particularly valuable.
  • When it comes to finding a financial advisor, there are various networks and resources designed to help you find the best advisor for your specific needs.
  • How a financial advisor is paid may impact their biases, motivations, and constraints. The cost of fee-only financial advisors is typically based on how much money you have with the firm, what services you need, and the skill/experience of the advisor.

Finance is a complex field. Legislation is always changing, new financial products are constantly being released, and the variables that influence the economy are seemingly innumerable. If this seems too much to handle or you simply don’t have the capacity to deal with this, there are professionals who have dedicated their careers to helping others with financial planning.

Why Look for a Financial Advisor

Financial advisors offer counsel on wealth management and personal finance. That might mean assembling a detailed retirement savings plan complete with milestones, or addressing other financial concerns you may have.

You might seek out a financial advisor if you need help with the following:

  • Setting up investment accounts and making investments.
  • Developing strategies around retirement, education savings, insurance and taxes.
  • Coming up with achievable financial goals and milestones.
  • Making an informed choice regarding unexpected financial issues.

There are also life-events that make us confront financial decisions that we may not have the time — or the knowledge — to manage.

This could include:

  • Retirement — You are edging closer to retirement and want reassurance that all your ducks are in a row.
  • Marriage — You are getting married and need advice on official pre-nuptial agreements, or you are recently married and help managing finances as a couple.
  • Divorce — You need advice on managing the various financial pitfalls of a divorce.
  • Widowed — You are recently widowed and your late spouse was in charge of the finances.
  • Aging Parents — Your parents are reaching an age where they are unable to manage their finances independently.
  • Inheritance — You have inherited a substantial amount of money and don’t know how to invest it wisely, or you need help avoiding taxes.
  • First House — You need to come up with a savings plan for a down payment on your first home.
  • Children — You are starting a family and want advice on how to take advantage of tax breaks, save for college, and budget expenses for dependents.

Working with a skilled financial investor could save you time and provide a plan to realistically address your financial goals.

Get a Head Start>> How to Use Your Goals to Create a Successful Investment Strategy

Where to Find a Financial Advisor

There are many ways to find the right financial advisors for your particular situation. We’ll go over a few below.

Paladin Registry

The Paladin Registry offers a financial advisor matching program to connect you to registered financial advisors. The registry only hosts fee-only financial advisors that act as fiduciaries (professionals who must act in the client’s best interests).

You also have the option to browse its advisor directory based on location and find a financial advisor yourself. Each financial advisor will have their credentials, education, and certifications listed on their profile. They will also include information about past experiences, licensing, services offered, how they are paid, the details of their firm, and their client requirements.

Additionally, you can access their educational investor tools that will teach you how to use public databases, and how to check advisor credentials. You’ll also pick up investing terminology to ease you into your search.

Read our review of Paladin Registry >>>

XY Planning Network

XY Planning Network (XYPN) provides fee-only financial advisors who focus on a client base of GenXers and Millennials (hence their name—Generation X and Generation Y).

Listed financial advisors must hold the Certified Financial Planner (CFP) designation and are required to have years of relevant experience.

The CFP is a certificate that recognizes a professional’s expertise in financial planning. To obtain this certification, one must go through the required education and experience, and pass a standardized test. Financial advisors who have their CFP generally are considered a plus.

XYPN advisors can work with you virtually, so you can live anywhere within the U.S. and still find assistance. The company specializes in services such as estate planning, tax planning, career planning, insurance planning, and other services. Many of XYPN’s financial advisors have a particular area of focus based on their expertise, their personality, and demographics they enjoy working with (i.e. regional, cultural, occupational, family status, financial goals, etc.).

The financial advisors as XYPN do not receive commissions, do not sell additional products, and are sworn fiduciaries.

Talkin' 'bout my generation>>Millennials Save Earlier Than Boomers: But Will They Retire Wealthier?

​​The National Association of Personal Financial Advisors (NAPFA)

​​The National Association of Personal Financial Advisors (NAPFA) was formed in 1983 as a professional association of fee-only financial advisors. Members must uphold a code of ethics and take a fiduciary oath each year.

NAPFA members can’t accept commissions. This is to disincentivize advisors from recommending investments or products for the sole purpose of obtaining higher commissions. Additionally, NAPFA members also can’t accept referral fees.

NAPFA members are rigorously vetted. In order to be listed on the member network, they must maintain their CFP certification and commit to 60 hours of continuing education every two years. The application process includes submitting a sample financial plan or participating in a peer review with a third-party reviewer.

To find a NAPFA financial advisor, simply visit the website, and enter your zip code. You will be met with a map dotted with qualifying members.

Understanding financial advisors>>Different Types of Financial Advisors

Garrett Planning Network

Financial Advisors at Garrett Planning Network are fee-only and charge by the hour. This allows them to help with smaller projects like figuring out how much life insurance a client needs, or whether or not a client should refinance a mortgage.

They offer comprehensive financial planning, alongside services such as cash management and budgeting, investment analysis, college education funding, and more. Member advisors must either be a CFP certificant or a licensed CPA with the Personal Financial Specialist (PFS) credential, and all must adhere to the fiduciary oath.

You can search for advisors through their website based on services and specialists, or browse their list of virtual advisors.

CFP Board

According to the CFP Board, over 93,000 individuals in the United States currently meet CFP requirements for certification. The board's search engine allows you to identify individuals who currently hold this certification, or who were certified in the past.

You can also find whether individuals have been “disciplined publicly” by the CFP Board and why.

This is a great tool to verify whether the financial advisor you’re working with is a CFP. You can also use their Find a CFP Professional tool to search for a financial advisor to work with by entering your location and the services that you’re interested in.

Read more>> What Is a CFP and Do You Need One?

Robo-Advisors

Technology is constantly automating tasks traditionally done by humans. Financial advising is no exception. Robo-advisors offer algorithm-driven financial planning through digital platforms. When you work with a robo-advisor you will typically take a survey regarding your financial goals and current financial situation. The robo-advisor will analyze the data to automatically execute a personalized investment strategy.

Robo-advisors have the advantage of being low-cost, often charging annual flat fees. They also typically require less up-front capital compared to traditional financial advisors.

While clients don't work with an actual human being, many robo-advisors offer tiers that include unlimited access to CFPs. Examples include Betterment, Vanguard Personal Advisor Services, and SoFi Automated Investing.

More Robo-Advisors>> Best Robo-Advisors for 2022

Considerations to Make for Financial Advisors

When deciding on a financial advisor, it’s important to know the advisor’s qualifications, their ethical standards, and how they're compensated. These factors are important to understand because they may affect the advisor’s motivations for offering recommendations.

Brokers vs. Registered Investment Advisors (RIAs)

We already went over the qualifications of the individual advisor, such as the CFP designation. But whether the firm itself is a Registered Investment Advisor (RIA) could provide more insight as to the nature of service as well. RIAs are directly regulated by the Securities and Exchange Commission (SEC) and act as fiduciaries. As covered above, fiduciaries are held to various standards to work in their clients’ best interests. RIAs may charge time-based fees or fees as a percentage of assets under management.

Brokers who represent independent broker-dealers often work on commission and can be motivated to sell and recommend particular financial products. They are not constrained by fiduciary standards, and can recommend a broader array of products beyond the mainstream.

The choice between a broker and an RIA depends on how much you trust an advisor that may not have a fiduciary responsibility, and whether or not you want to work with a financial advisor that has access to products and services that an RIA may not have.

Fiduciary vs. Non-Fiduciary

Fiduciaries are required to follow legal and ethical guidelines that put their clients interests before their own. They have a duty of care and duty of loyalty to their clients. If a fiduciary breaches these guidelines, they can face financial, legal, and other penalties.

Non-fiduciary financial advisors, on the other hand, might make a suitable recommendation for someone in your general situation, but it may not be the best for your particular situation. They may be motivated to steer you towards some financial product, fund, or investment for which they receive a commission.

Typically, the more you plan to rely on your financial advisor for guidance, the more important it is that you find a fiduciary.

Commission vs. Fee-Only

Fee-only advisors typically charge based on percentage of assets under management, time, or services rendered. Commission-based advisors are generally compensated from commissions earned on financial products and transactions. This might not seem like a big deall, but each pay structure may bias a financial advisor toward different recommendations.

Fee-only advisors generally have a fiduciary duty to put a client’s financial interests before their own. They generally can’t, for example, sell a client a product that isn’t in line with their stated financial objectives and risk tolerance.

In contrast, a commission-based financial advisor’s main form of payment is the commission they earn on opening accounts and selling products. This can increase the risk of a conflict of interest between recommending what’s truly best for their clients clients and recommending products to receive commissions. While commission-based advisors can be fiduciaries, it is not a requirement.

Related>>Why Are the Online Brokers Going Commission-free?

Bottom Line

Choosing the right financial advisor can save you substantial time and provide peace of mind that you have a professional helping you with your financial goals. There are tons of resources that exist to help you review and choose a financial advisor that’s best for you.

In addition, understanding various aspects such as qualification of a financial advisor, whether the advisor is a fiduciary, and the different types of fee compensations will help you search for a financial advisor that has your best interest in mind.

Learn About Financial Advisors>>

Disclaimer: The content presented is for informational purposes only and does not constitute financial, investment, tax, legal or professional advice. If any securities were mentioned in the content, the author may hold positions in the mentioned securities. The content is provided “as is” without any representations or warranties, express or implied.

Jay Wu, CFA®

Jay Wu, CFA®, has over a decade of finance experience spanning asset management, restructuring, and investment banking. He started Money Knock (https://moneyknock.com) to help readers navigate through the intricacies of various investment and personal finance related topics.

Related Articles

Leave a Reply

Your email address will not be published.

Back to top button