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How to choose a financial adviser that's right for you

It's never a bad idea to start budgeting. / Getty Images

There are several reasons to hire a financial adviser - at any stage of life, whether you're preparing for retirement or just launching your career. You may want to tap into expert advice on taxes or a home purchase. Maybe you're even seeking some budgeting tips to save up for your dream vacation. Either way, it's a good idea to budget accordingly.

To start, you'll want to narrow down your specific financial goals. That way you're less likely to pay for services you may not necessarily need.

To ensure you're getting the best bang for your buck, check industry associations and their criteria. Many financial advisers, like a Certified Financial Planner (CFP) or a Chartered Financial Analyst (CFA), must pass exams or meet certain criteria to be admitted to their professional associations or groups. You can also vet them through various services, including The Financial Industry Regulatory Authority's (FINRABrokerCheck.

What type of financial adviser do you need?

There are seemingly endless titles linked to financial professionals with different areas of expertise. FINRA, a U.S. government-supervised nonprofit, offers a directory of professional designations that can help you decipher different titles - and their veracity. The U.S. Securities and Exchange Commission also offers an investment glossary.

Here are a few common titles: 

  • Financial adviser: Often a broad term that includes advice on securities (stocks and bonds) brokers, money managers, insurance agents, tax professionals and even bankers.
  • Certified Financial Planner (CFP): Typically examines your overall financial picture and comes up with a plan to meet your long-term financial goals. 
  • Chartered Financial Analyst (CFA): Must pass a three-part exam on investing tools, valuing assets, managing investment portfolios and planning.
  • Registered Investment adviser (RIA): Provides investment advice about securities including bonds, exchange-traded funds (ETFs) mutual funds, stocks and other investment products. RIAs register with the SEC or state securities regulators.
  • Wealth manager: Provides services for wealthy clients, typically defined as having more than $1 million in easily accessible, or liquid, assets.

What credentials should a financial adviser have?

Before you officially start the process of hiring a financial adviser, you'll want to carefully check their credentials to make sure they're the right fit.

The best way to start your research (other than doing an internet search) would be to check your potential adviser's affiliated association and what credentials are required. 

You can also look through directories at:

  • FINRA's BrokerCheck website or by calling FINRA's hotline at 1-800-289-9999 
  • The SEC's Investment Adviser Public Disclosure (IAPD) website or use the SEC Action Lookup tool to find any formal actions against individuals
  • Your state securities regulator

How to find a financial adviser

Many professional associations have large directories. For example, the National Association for Personal Financial Advisors lists fee-only, fiduciary planners. The Financial Planning Association also offers a directory you can browse through.

You can also ask friends, relatives or people in your professional network for recommendations and then do some additional diligence. 

Fiduciary vs. non-fiduciary financial adviser

Advisers that follow fiduciary standards - also known as fiduciary duty - act in the client's interest first, even if their own compensation suffers. Federal agencies in recent years strengthened rules for many financial professionals to include these standards, including broker-dealers.

Certified Financial Planners (CFPs), for instance, "must put the client's interests ahead of their own," said James Lee, president of Saratoga Springs, New York-based Lee Investment Management and president-elect of the FPA. Registered investment advisers also must "commit to a fiduciary standard under law," Lee explains. 

Questions to ask a financial adviser

To find a financial adviser that meets your needs and expectations, you'll want to make sure you're asking the right questions. When scheduling a meeting with a potential adviser, make sure you come prepared. Experts recommend having a solid list of questions, including:

  • What services do you provide?
  • What kind of clients do you work with most?
  • How long do you typically spend with them and how do you meet? (in-person, Zoom, phone, etc.)? 
  • How often do you communicate with clients, and how (email, call, paper mail, etc.)?
  • Are you a fiduciary? 
  • How do you get paid, and how much will I be charged?
  • What services will my bill include? 
  • What are your certifications or credentials? 
  • What is the average cost of your services?
  • Which professional groups do you belong to?

How much does a financial adviser cost?

The types of fees you'll pay depends on the kind of advice - and adviser - you hire. 

Three typical payment structures are:

  1. Fee-only: The adviser operates by charging specific fees. A stand-alone financial plan ranges from roughly $1,800 to $2,500 in 2020, according to the Kitces report on adviser pricing. Some fee-only advisers may also charge by the hour. 

  2. Commission: The adviser takes a certain amount or percentage when you buy a financial product the adviser directs you to. 

  3. Percent of assets under management (AUM): The broker or adviser takes a percentage, usually around 1%, of the total assets managed. So for $100,000 in assets, the adviser would charge $1,000. 

How to resolve disputes with your financial adviser

You can typically file a complaint with a regulatory body that oversees the kind of professional you used. The SEC or state regulators oversee financial advisers, while FINRA regulates brokers. You can also lodge a complaint with an adviser's corresponding professional association. 

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