How To Select A Financial Advisor

Many people feel comfortable making financial decisions on their own, perhaps with the help of books on personal finance, online calculators, or financial planning software. Others choose to meet their goals by seeking professional financial help.

A professional advisor can often help people who:

1. Lack the time to manage and monitor their own financial matters.

2.  Does not have the expertise to make wise financial decisions. 

3. Face changed circumstances—perhaps because of marriage, the birth of a child, an inheritance, a divorce, a new job, the sale of a business, or the receipt of a lump sum from a retirement plan.
4.  Need explanations, advice, or reassurance from an expert to navigate through the complexities and risks of the financial markets. 
5. Want a second opinion about a financial plan they have developed on their own (or that another advisor has proposed).

Finding expert help need not be difficult. But it's not a step to be taken lightly, so you should devote some effort to the search. This chapter frames the considerations involved by describing various types of advisors and their credentials, then explaining the importance of how an advisor is compensated. Finally, this chapter presents a method to help you choose, and then work with, a financial professional who's right for you.

Preparing For Your Search

A professional advisor analyzes your financial circumstances, prepares a plan to meet your financial goals, and sometimes, manages your investment portfolio. He or she may be called a financial planner, an investment advisor (who may also be known as an asset manager or a money manager), a wealth manager, an accountant, a banker, an insurance agent, or a securities broker.

Because there are so many types of financial professionals to choose from, you should ask yourself two key questions before you begin a search for an advisor.

What Are My Financial Goals?

You should define your financial goals, even if only in a general way. You might find, for example, that you need a comprehensive plan that will take into account cash management and budgeting, investments, taxes, insurance coverage, and estate planning. If so, you might consider a financial planner, a type of advisor who analyzes and coordinates the many aspects of your financial picture. Such a comprehensive planner often works with specialists such as lawyers, investment managers, and tax and insurance experts. These specialists may be either on the planner's staff or with outside firms (including, for example, your own lawyer or accountant).

By contrast, the exercise of defining your goals might show that your focus can be much narrower. Perhaps you need help only in one or two areas such as selecting investments, managing your portfolio, developing a retirement plan, minimizing estate taxes, investing an inheritance, or handling a large distribution from a retirement plan. A financial planner can help with any of these. Or you can go to a specialist, such as an investment advisor, for your investing needs or an accountant or tax lawyer for tax planning.

What Do I Expect From An Advisor?

An advisor can help you achieve your financial goals in several ways. So ask yourself whether you want one-time advice—or whether you'll require ongoing financial planning and guidance.

Also decide whether you want to handle some parts of your finances yourself. For example, your advisor may recommend an investment plan and then carry it out for you or recommend another firm that can execute your plan. But you may decide to implement the investment plan yourself (and save on fees).

Being clear about your financial goals and the role you expect an advisor to play will help you stay on track as you search for, and then work with, an advisor. As you gather information, you'll want to make sure you have a good understanding of each advisor's expertise and compensation arrangements. 

How To Find A Competent Advisor

Developing An Initial List

Now you are in a good position to start the actual search. Begin by creating a list of possible advisors. One approach is to ask for recommendations from friends and relatives. But don't ask only for names: find out whether their financial goals are similar to yours, how they use their advisors, and why they chose them.

But friends and relatives may lack the expertise needed to accurately judge the quality of an advisor's work, so consider checking with professionals such as attorneys and accountants, too. Because they are concerned about their reputations, their recommendations could well prove to be more reliable. 

Additional sources are available but should be used with caution: 

Other Referral Services

Various private organizations make available lists of advisors. In addition, some personal finance magazines publish lists. Check the requirements for listing by asking, for example, whether anyone who pays can be listed and what standards, if any, have to be met.

Seminars

Many financial services organizations host seminars. Some of these seminars are education-oriented, but many are simply a way for the sponsoring individual or company to generate lists of potential customers. Attendees do, however, get the chance to sample the style and credibility of the advisor. 

This is a great opportunity to get some of your financial questions answered without scheduling a meeting with the advisor.

Articles Or News Appearances

A financial professional who is featured in a publication or on a news clip may be excellent—or may simply be quotable. Always check to ensure that he or she can meet your particular needs.