How to Choose a Financial Advisor

By Travis McShane, CFP®, CFA®


So you’ve reached the point where it makes sense to get some professional help with your personal finances.

How did you get here?

  • Do you need retirement advice to make sure you’ll have enough to live on?

  • Are your kids’ college tuition and other expenses starting to add up?

  • Do you need help navigating the ever-expanding universe of financial products, mutual funds, and insurance products to find the right tools for your situation?

  • Are you having difficulty puzzling together how much you should be saving?

If you have lived in Orange County for any length of time, you’ll know that plenty of options are available when seeking out “financial advice.” Unfortunately, the quality of the advice varies dramatically depending on the source because just about anybody can call themselves a “financial advisor.” Or possibly you’ve heard of one of these other terms we advisors like to call ourselves:

  • Financial consultant

  • Financial planner

  • Financial counselor

To try to establish a minimum level of competence for investment advice, the personal finance industry has developed a multitude of professional certifications and credentials that are supposed to denote expertise in various subject areas.

However, this alphabet of credentials leaves it up to the consumer to sort through which designations require a rigorous course of study and work experience to complete, and which require the advisor to simply pay a fee, take a test, and receive a designation.

To help you vet potential financial advisors, here are a few of the more desirable professional designations to look for along with links to their certification requirements:

Each of these certifications has strong ethical, educational, and experience requirements that the members are held to in order to use the designation. Continuing education is also an important factor to consider so that the members stay up date on industry best practices and new planning opportunities.

Choosing from whom to receive your advice is an important decision, and it is worth the extra time and effort up front to determine whom you can trust to help manage your life savings and guide your family toward its financial goals.

Fiduciary standard vs. suitability standard: The first step you should take in your search is to make sure the financial advisor is always required to put your best interests first. This may seem obvious, but unfortunately not all advisors are held to the fiduciary standard of care, which requires advisors to put their clients’ interests ahead of their own. A simple question to ask is “Are you always required to put my best interests first?”

Most advisors operate under what is known as the suitability standard of care, which means they just need to be sure that the products they recommend to you are suitable for someone in your situation. The products do not necessarily have to be the best solutions available.

Areas of financial planning: The next step is to determine the financial planning areas in which the advisory firm can assist you. Some advisors are only interested in selling you financial products and do not consider your overall financial situation when making recommendations.

Look for advisors with expertise in the following areas:

  • Investment management

  • Retirement planning

  • Tax planning

  • Insurance planning

  • Estate planning

  • Charitable planning

Independence counts: Next, look for advisors that are independent and able to choose from all available solutions in the marketplace. Many advisors can select from only a specific list of options provided by the company that employs them. For example, if an advisor can sell only annuities, then it is very likely that they will figure out a way to solve your problem with an annuity, which may not be the optimal solution. Have you ever heard the expression “If you’re only given a hammer, then everything looks like a nail”?

Once you’ve narrowed down your list, one of the best questions you can ask a financial professional is:

“How do you get paid?”

If you can’t get a straight answer to this question, then how are you supposed to place your trust in this person to help you with your financial situation? Here are a few of the ways advisors are generally compensated:

  • Commission only

  • Fee and commission (a.k.a. fee based financial planner)

  • Fee only financial planning

  • Hourly rate

  • Flat fee/project fee

Most fee only advisors are regulated by the Securities and Exchange Commission as Registered Investment Advisors (RIAs) and generally have fewer inherent conflicts of interest when compared with their commission-based counterparts.

Commission-based advisors are usually licensed by the Financial Industry Regulatory Authority (FINRA) and/or their state’s insurance commission, which enables them to receive commissions for the various products they recommend and sell to you.

Remember that most people do not work for free, so if you can’t figure out what you will be paying for the services, you should probably take that as a warning sign!

Here are a few good online resources to help you with your search for a personal financial advisor:

Remember to take your time with this decision. It is much better to move slowly at the outset and make a good decision on the best financial advisor to work with the first time around. This will not only improve your peace of mind as it to relates to your finances, but it will help prevent you from having to jump from advisor to advisor over your lifetime, which could be detrimental to your long-term goals. It will also improve your ability to follow the advice you are receiving, as you’ll know the source to be competent, experienced, and transparent.

Schedule a 15-minute discovery call with a fee only financial advisor to discuss your personal situation.