How to Choose a Financial Advisor

Choosing a Financial AdvisorChoosing a financial advisor is one of the most important financial decisions you will make. The independent financial advisor you select will influence your investment decisions and the quality of those decisions along with other factors, of course, will impact your long-term financial security, especially in your retirement years.

There are different types of financial professionals: registered representatives (stockbrokers and bank representatives), financial planners (CFP, CPA/PFS or ChFC certification, among others) and financial advisors. Financial advisors are compensated with fees and are financial fiduciaries so they are held to a high ethical standard in the financial services industry. A registered investment advisor is registered with the Securities and Exchange Commission or a state securities regulator and can manage your investment portfolio.

A good way to choose a financial planner is to ask people for recommendations. Then, do your own due diligence by looking them up online. Be sure to check professional websites like LinkedIn and their own website, or their firm’s website. You’ll want to meet with at least three advisors before making your decision.

At your initial interview expect the advisor to ask exploratory and more direct questions. According to financial expert Suze Orman, “A good financial adviser will ask you all — not some, but all — of the following questions: How is your health? (This is No. 1, in my opinion, since if you’re not healthy you’ll need first and foremost to plan for your medical care and possibly your income if and when you cannot work.) Are you in debt? (This is No. 2.) Are you responsible for aging parents? Do you have a will or trust? Will you inherit money someday? Do you need to make a major purchase like a new car or a new roof for your home? Do you have a retirement plan? Are you funding it to the maximum allowed by law? Do you have adequate insurance? Are you saving for your children’s education? Only after an adviser fully understands your financial situation should he or she ask you how much money you have to invest.”

Be prepared to ask your own questions. These should include how services are charged and at what cost; what licenses, certifications and credentials the advisor has; what services does the advisor’s firm provide, such as retirement, insurance, estate planning and tax planning. You also want to have a discussion about the advisor’s investment approach and determine that you are comfortable with their approach towards investing. Also, ask who you will be working with as many advisors will work one-on-one with the client, pulling in staff support when needed.

It’s a good idea before you meet with them to ask yourself what you expect out of the relationship. Some advisors prefer to meet with you once a year, while others touch base on a monthly or quarterly basis. A new J.D. Power & Associates survey found that investors contacted 12 or more times a year had the highest rates of satisfaction with their advisors. Only you can decide which is best for you.

It’s also important to find out how financial planners are paid. They can be compensated in a number of ways. This is an extremely important question to ask because you want to be sure they are advising you with your best interests in mind, not just making a sale. Investment advisors generally are paid in any of the following ways:

  • A percentage of the value of the assets they manage for you
  • An hourly fee for the time they spend working for you
  • A fixed fee
  • A commission on the securities they sell (if the adviser is also a registered representative of a broker-dealer) or
  • Some combination of the above

Each compensation method has potential benefits and possible drawbacks, depending on your individual needs. Ask the investment advisers you interview to explain the differences to you before you do business with them, and get several opinions before making your decision. Also ask if the fee is negotiable.

You don’t want to work with a dishonest advisor, regardless of the advisor’s form of compensation. Although there are no fool-proof ways of ensuring the advisor is honest, there are numerous ways of tracking down information that will significantly increase your confidence in the integrity of the advisor you select. A registered investment advisor is required to have a Form ADV, a document that is prepared according to regulations developed by the Securities and Exchange Commission (SEC) and must be made available to every prospective client. The Form ADV outlines an advisor’s business, including compensation, experience, service offerings and any disciplinary history. These documents are often available on an advisor’s website. If not, you need to request a copy during the evaluation of the advisor’s firm. To learn what to look for in the Form ADV, visit the SEC website.

The SEC and oversight organizations set up by the financial services industry also keep records about disciplinary actions against advisors. Before hiring an advisor, check out the SEC Investment Adviser Public Disclosure (IARD) website. If your prospective advisor is not an RIA, he/she is most likely a registered representative of a broker/dealer. In this case you can check the FINRA BrokerCheck website or the NASAA Check Out Your Broker website for his/her disciplinary history. It is a good idea to check both locations. Your prospective advisor may be a new RIA with a broker/dealer history.

Finally, it’s important that you feel comfortable with the planner. You will need to divulge personal and financial matters on a regular basis to the advisor so that he/she can make the best decisions for your financial future. Being diligent and asking these questions in the interview process will tell you if the prospective advisor is right for you.

For more information on Summit Brokerage Services, an independent broker-dealer, visit or contact us at (800) 354-5528.

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