When looking for financial advice, you might run into some confusion over all the terms floating around for financial professionals and the ambiguity of the many labels. The term financial advisor itself doesn’t reveal much, as essentially anyone can call themselves a financial advisor, and they can vary widely in terms of the services they provide, their qualifications, and legal obligation to you.
The same applies to similar titles such as investment manager, financial planner, and wealth advisor, which don’t tell the full story of that advisor’s ability to handle your specific needs.
If you are looking for a financial advisor, you should try to look deeper than the label. Instead, assess areas such as:
One way to evaluate a financial advisor is to look at their certifications. For example, anyone can call themselves a financial planner, but not everyone can call themselves a CERTIFIED FINANCIAL PLANNER™ (CFP®) professional. If your potential advisor has CFP® certification, then you can determine the education, experience, and ethics requirements they had to meet to attain—and keep—that designation.
A certification can also help you understand an advisor’s focus. For example, a CFP® professional has training in comprehensive financial planning, including retirement planning, whereas those who carry a Chartered Financial Analyst® (CFA) designation may focus on the investment management aspect of financial advice.
So, consider the certifications an advisor has to get a sense of the type of advice they offer. Keep in mind that there can be crossover in focus, education, etc., among designations and that a financial advisory firm may have staff members with different certifications who together can offer the full spectrum of financial planning.
Financial advisors can charge for their services in a variety of ways, which generally fall into the main categories of:
- Fee-only: A fee-only financial advisor earns money directly from clients, such as a flat fee or a percentage of assets under management.
- Commissions: A commissioned financial advisor earns revenue from financial companies in the form of commissions for selling you certain products and services.
- Fee-based: While the terms fee-only and fee-based may sound similar, keep in mind that a fee-based advisor can earn revenue through both the fees they charge you and the commissions that companies provide them.
As a fee-only financial advisor in Vancouver, WA, we believe that the fee-only model serves clients best, as the allure of earning a commission can create conflicts of interest when recommending products.
Related to fee structure is a financial advisor’s legal duty. Financial professionals generally fall into the following buckets:
- Registered Investment Advisors (RIAs): An RIA is registered with the U.S. Securities and Exchange Commission or a state regulatory agency. An RIA must follow the fiduciary standard, which means they must act in clients’ best interests rather than putting the firm’s interests first.
- Broker-dealers: These financial professionals may call themselves a financial advisor, but in some ways, they act as a salesperson, earning commissions for selling financial products. You may find broker-dealers at large financial organizations, such as big banks. In the past, broker-dealers have followed the suitability standard, which did not require recommendations to be in the best interest of clients. However, a new law, Regulation Best Interest, comes into full effect on June 30, 2020, and requires broker-dealers to make investment recommendations in the best interests of clients. Yet not everyone agrees that the law is as strong as the fiduciary standard that RIAs follow.
- Hybrid advisors: Financial advisors can be both an RIA and a broker-dealer, meaning they can earn both commissions as a broker or client fees as an RIA.
When you’re trying to find the right financial advisor, be sure to clarify the legal standards and fee structures the financial professional follows.
Lastly, to find a financial advisor who can help you meet your financial goals, be sure to consider their experience, in terms of the types of clients they work with, the areas of financial planning they specialize in, and the client experience they offer.
You want to make sure that the advisor’s experience and services match your needs. For example, you may have a less complex financial situation and need just investment management. In that case, you might want an advisor who builds an investment portfolio utilizing a robo-advisor, an automated program that relies on artificial intelligence to efficiently help you select allocations.
On the other hand, you may have a complex financial picture and need wealth planning that integrates cash flow, taxes, retirement, investments, estate and more. Make sure to understand your needs to select the optimal advisor for you.
You may want to seek an advisor who serves clients similar to you. For example, our wealth management firm, based in Vancouver, WA, and San Mateo, CA, has experience helping specific types of clients, such as self-employed individuals and those going through a life-changing event, among others.
Finding the Right Financial Advisor for Your Financial Situation
When looking for the right advisor for you, take the time to understand how a potential advisor’s certifications, experience, fee structure, etc., fit your needs. We believe that an independent, fee-only RIA provides many advantages, such as a fiduciary obligation in reaching your financial goals, but your selection should depend on your unique situation.
Schedule a complimentary meeting with a wealth advisor to discuss your personal situation.
This material was prepared by Kaleido Inc. from information derived from sources believed to be accurate. This information should not be construed as investment, tax or legal advice.