Are you looking for a personal financial advisor? If you’re reading this site, then almost certainly you have the intelligence needed to do everything on your own. Reading the encyclopedia articles and blog posts on our site, as well as on other personal finance sites and forums, should serve you well in growing the knowledge base you require to handle your own affairs.
That said, just because you CAN do your own investing and money management does not necessarily mean that you WANT to. We all have constraints on our time, energy, and mental bandwidth. Some people, and you may be one of them, simply want to outsource this task to someone trustworthy to free up some time to do other activities. Or maybe you just want someone else to bounce ideas off of and to provide some advice, especially as you get started in organizing your own money matters for the first time.
If this is you and you’ve made the decision to work with a personal financial advisor, here are a few key things to look for and to look out for:
First, anyone can call him/herself a financial advisor. There is no minimum qualification needed. There is no required coursework, test, or license. There are, however, a number of different certifications out there that people can obtain. It’s a veritable alphabet soup with designations like CFP, ChFC, CPA, CFA, CAIA, etc. Our recommendation is you seek out someone with a CFP designation. Why? CFPs are certified financial planners, with college degrees and required coursework in a broad range of financial matters including taxes, estate planning, investments, retirement planning, and insurance. Also, they are fiduciaries, meaning they must act to maintain your best interests at all times instead of selling you on products that make them money (as permanent or cash value life insurance agents will do).
Second, look for an advisor who is fee-only. This means the advisor is paid a fixed amount on a project basis or on an hourly basis. AUM, or assets under management, is also considered fee-only, but see if you can’t avoid this type of fee arrangement. If you can’t, then look for something lower than 1%, which seems to be the going starting rate. As you get to higher levels of money managed, the fees go lower and lower, typically. We do not recommend planners who are paid on a fee-based (combination of fee-only and commission-based) or commission-based fee structure.
Finally, review the advisor’s Form ADV. You can look this up at https://www.adviserinfo.sec.gov/. This disclosure must be filed with the SEC by advisors and describes the services offered, credentials and work experience, fee structure, disciplinary information, and conflicts of interest. This may be very boring (which is a good thing), or it may be fascinating reading (probably best to avoid).
To wrap up, consider these questions, both for yourself and for the potential advisor:
- Do I have the time, energy, and interest to read about the financial matters that affect my wealth management plan and to take steps to implement them?
- Is the advisor a CFP? If so, then he/she will meet the necessary educational, experience, and ethical requirements (including meeting fiduciary, not just suitability, standards).
- Is the advisor fee-only? What kind of fee structure is charged? Are there any AUM fees? If so, are they less than 1% and do they decrease in a tiered manner?
- Does the advisor have a clean Form ADV?
- Do I feel comfortable asking questions of the advisor? (You will be disclosing a lot of your intimate personal financial details to this person, so you had better feel comfortable working very closely with him/her.)