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How to Select a Financial Advisor

October 2018

Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

There are many times in life when professional financial advice can be very useful. Many of these times involve significant life events such as changing jobs, losing a job, receiving a lump sum distribution from a retirement savings plan, receiving an inheritance, purchasing or refinancing a home, getting married, getting divorced, having or adopting children, becoming widowed, and getting a big raise.

Hiring a financial advisor requires time to “search and screen” for someone who is well qualified, experienced, and affordable. When this is done at the time of crisis situation (e.g., the death of a spouse), people may have to “settle” rather than choose. Therefore, it makes sense to do some “due diligence” before a crisis occurs.

Consider the following eight factors when selecting a financial advisor:

Personal Needs: Determine the financial services that you need. For example, ongoing portfolio management or a one-time review of your personal finances. Perhaps, you do not really need advice at all but simply someone to help you purchase insurance or investment products. Make a list of your financial questions and “issues” to determine what products and services you are looking for.

Professional Credentials: Check out the credentials, licenses, and educational background of financial professionals that you are considering. Most financial advisors have a college degree, usually in a finance-related area such as accounting, business management, and economics. Additionally, many have advanced degrees. Also, look for financial designations that indicate successful completion of specialized training courses. An example is someone who holds the CFP® (certified financial planner) credential.

Experience: Look for someone who has worked in the financial services industry for a number of years. Practical “real world” experience is as important as designations earned through self-study and exams. For example, you will want to select an advisor who has personally experienced both rising (bull) markets and bear market downturns and steered their clients through life's inevitable challenges.

Ethics Violations: Check various sources for information about financial advisors. Professionals, such as CFPs®, must adhere to a code of ethics and disclose any investigations or legal proceedings related to their financial practice. Information about infractions in an advisor's past is available through the CFP Board, a state Bureau of Securities, the U.S. Securities and Exchange Commission, or simply searching advisors' names online. Information might pop up if their infractions were reported in local newspapers.

Areas of Specialization: Find out what areas and/or types of clients financial professionals specialize in. Like medicine, financial planning is a very broad field and many financial professionals tend to specialize. Then determine if a planner's specialties match your situation. For example, if you are a young adult, you might select someone who specializes in serving Generation X and Y (Millennial) clients.

Compensation Method: Ask how a financial advisor is compensated by his or her clients. Typical methods include flat fees (e.g., an hourly rate for services provided for a client), assets under management (AUM) fees (e.g., 1% of the value of a client's investment assets), commissions charged for the sale of products, and a combination of fees and commissions.

Conflicts of Interest: Find out what conflicts of interest exist, if any. Two examples are rewards received by advisors for selling certain investments and business interests in affiliated products or organizations.

Comfort Level: Find a professional advisor that takes time to listen to your concerns and someone that you like and trust. When several advisors are equally competent, choose the one with whom you feel most comfortable.