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Small Steps to Select a Financial Advisor

August 2022

Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension

The stock market officially became a bear market in June 2022 as the Standard & Poors 500 and other stock market indexes were down more than 20% from their most recent all-time highs. Investors, understandably, are nervous as the value of their investments has plummeted. Some are seeking the help of financial advisors.

Recent research has found there is value in seeking financial advice, including goal setting, investment diversification, and positive behavioral responses to economic events (e.g., less "panic selling"). Another benefit of working with an advisor is planning for difficult life transitions (e.g., widowhood).

Two of the most frequent questions that people ask about finding an advisor are "Where can I find someone?" and "How much do they charge?" Following are seven tips for selecting financial services professionals:

Define Your Needs- What financial services do you want? Are you looking for ongoing financial planning services (e.g., asset management and/or regularly scheduled financial check-ups) or are you simply looking for answers to specific questions or someone to review your financial situation on an "as needed" basis?

Narrow the Field- The following websites will provide the names of local financial professionals. Each has a "search" feature for consumers to locate names, office addresses, and data about advisors:

Check Credentials- What credentials, licenses, and education does an advisor have? Look for specialized training in financial planning such as a Certified Financial Planner® (CFP®) license. Use the "Let's Make a Plan" tool to find a CFP® by geographic location, planning services, and last name. Other relevant certifications to look for are the accounting field specialization, CPA/PFS, and Chartered Financial Consultant (ChFC).

Look For Registered Investment Advisors- Because investment advice is often involved in financial planning, a financial planner also should be a Registered Investment Advisor or affiliated with a Registered Investment Advisory firm. This registration is issued by the U. S. Securities and Exchange Commission or a state securities regulatory agency (depending upon the amount of assets under a firm's management).

Evaluate Experience and Education- Practical experience counts in financial services so look for someone who has worked with clients for a period of time. CFP® licensees, for example, must have at least three years of experience. Ask about an advisor's prior work experience (e.g., sales positions). Also find out what professional organizations an advisor belongs to as such membership indicates a commitment to professional development.

Consider Specializations- Find out what areas and/or types of clients an advisor specializes in (e.g., retirees, young adults, LGBTQ individuals, military families). Because financial planning is such a broad field, many planners tend to specialize and develop niches. Determine if a planner's specialties match your situation.

Consider Compensation- Financial planners are typically paid by fees (hourly, annual, or flat fees for a specific service), commissions through products sold (e.g., annuities, mutual funds, or insurance policies), or a combination of fees and commissions, often referred to as "fee-based." Always ask how an advisor is compensated before you enter into a working agreement.

Once you have done some fact-finding, pick the best financial advisor for you. If several planners are equally competent, choose the one with whom you feel most comfortable and connected.