A good financial advisor can help you invest better, budget smarter and reach money goals faster. But finding an advisor who is qualified, trustworthy and well-suited for your needs involves some legwork.
If you’re searching for an advisor who has a clean regulatory history and the proper licenses and certifications, there are a few good places to start looking. Here’s how to find and vet a financial advisor:
— Identify your needs.
— Check the advisor’s credentials.
— Understand fees.
Read on for more information on how to find the advisor who’s right for you.
Identify Your Needs
Knowing precisely what you want from a financial advising relationship is the first step in your search.
“Before starting a search for a financial advisor, the first thing you need to do is take a look in the mirror and determine your financial needs,” says Gerri Walsh, senior vice president of investor education at the Financial Industry Regulatory Authority, also called FINRA. “Are you just starting out with investing? Nearing retirement and need to make up some ground? Your needs will be different depending on where you are.”
Jason Gamel went through the process of vetting advisors after he decided it was time to find new financial advisors for both himself and his organization, the American Resort Development Association, where he just became CEO and president. Although his personal needs differed from those of a large organization, his approach to finding both advisors was the same.
“It was important that the advisors we chose, both personally and professionally, really shared our philosophy of what we were trying to accomplish,” Gamel says. “Advisors have to have buy-in, be supportive and really invested in how we manage our finances.”
For his own needs, Gamel wanted a personal touch. “I wanted someone who really understands me and my goals, so they can see how their decisions will affect my life.” He also wanted someone local with whom he could meet in person if needed.
Depending on your needs, you may want an advisor who has a certain kind of expertise. For example, an advisor may specialize in small businesses, retirement planning or LGBTQ financial issues.
Financial advisors who are also certified public accountants, for example, have tax expertise that help their clients.
“Taking a holistic approach to financial planning, built around their tax expertise, makes CPA financial planners extremely well-suited to help clients navigate these challenging times,” wrote Andrea Millar, director of personal financial planning for the Association of International Certified Professional Accountants, in a statement.
Check the Advisor’s Credentials
Financial advisors don’t have a specific licensing requirement, but some licenses signal you’re working with a true professional.
“The best way to make sure you’re working with someone who’s really qualified is to check their licenses,” Walsh says. “You can protect yourself by working only with registered brokers.”
The Securities Industry Essentials (SIE) exam, is an introductory-level test to ensure a basic knowledge of securities industry information. It includes concepts fundamental to working in the industry, such as types of products and their risks, the structure of the securities industry markets, regulatory agencies and their functions and prohibited practices. The exam is coupled with licensing for specific financial products. Look for the Series 7, administered by FINRA, which allows an advisor to sell a range of investment products.
The certified financial planner, or CFP, credential demonstrates that an advisor has completed coursework in financial planning, passed a rigorous exam, with a commitment to certain ethical and professional standards when providing financial planning services.
A professional who is a chartered financial analyst, or CFA, has a strong foundation in investment analysis and portfolio management skills, honed while completing three difficult exams.
Run any potential advisors’ names or firms through FINRA’s free tool, BrokerCheck, which will give you their employment history, licensing information, previous regulatory actions, arbitrations and complaints.
The Securities and Exchange Commission, or SEC, has a tool that will allow you to look up individuals who have been named as defendants in SEC federal court actions or respondents in SEC administrative proceedings. The SEC also has an Investment Advisor Public Disclosure website that provides information on professional background and conduct, including current registrations, employment history and disclosures about certain disciplinary events. The SEC site ties into FINRA’s BrokerCheck.
Advisors are paid differently depending on the services they provide. The three main types of fee schedules are a flat fee, commission or percentage of assets under management. When deciding which advisor to partner with, it’s important to ask how much you pay, which services you’ll need and whether it’s worth the cost.
While some people might appreciate having an advisor who recommends products, others might be uncomfortable knowing that their advisors make a commission on each product they buy. Many Americans erroneously believe that all financial advisors put their client’s interests first, but only fiduciary advisors commit to acting in your best interest at all times during the financial planning process. It’s worth asking whether an advisor acts as a fiduciary before hiring him or her.
When asked if one type of payment is better than another, Walsh says, “FINRA has no position on types of products, professional strategy or fee structure, but only on whether the advisors are following FINRA rules and regulations, including on transparency of how those fees are issued.”
After you’ve settled on a new advisor, it’s important to continue to check in on the partnership itself.
Gamel was upfront with his personal advisor that he would be regularly comparing fees with other brokers’ offerings. He hired the advisors for his company on a five-year agreement. With both advisors, he goes through all the investments quarterly and has an annual review.
“You have to have a personal stake in what you’re doing,” Gamel says. “You can’t just let the advisor do all the work.”
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