How to Vet a Financial Advisor

older couple meets with financial advisor

Whether retirement’s just around the corner or that golden time is still several years off, it’s never too early to enlist a professional financial advisor to help you plan.

A financial advisor can help you invest better, budget smarter, and reach your money goals faster. But before you make that first appointment to lay out your financial life to a stranger, you’re going to want to do some due diligence, or you may not get the kind of help you need.

How to Tell if a Financial Advisor is Legitimate

Not all financial advisors are created equally. So, when you set out to find financial help, you need to understand the skill set of the person you’re speaking with because different kinds of advisors fall under the umbrella term “financial advisor.”

“You should know that ‘financial advisor’ is a generic term that can be associated with a lot of different titles,” says Andrew Purnell, retired registered investment advisor and financial advisor with Merrill Lynch and Morgan Stanley. “A CPA can be a financial advisor, as can an attorney or insurance agent.”

You want someone trained and licensed to handle other people’s money or a fiduciary.

“While there are certainly qualified people who work at large brokerage firms like Wells Fargo,” says Rich Zanghetti, managing director of Lion’s Bridge Wealth Management, “they are advisors who receive compensation on selling products. A fiduciary has a legal obligation to make sure we put your best interests at heart. Fiduciaries are not compensated by anyone for suggestions of how to invest your money. The only way we get paid is by the fee you pay us for advising.”

These are the credentials you want to look for:

  • Certified Financial Planner (CFP). These professionals help clients plan for the future and offer advice on investments, insurance, tax planning, retirement, estate planning, and more. However, they are not licensed to purchase and/or sell security products such as stocks, municipal fund securities, options, direct participation programs, and investment company products.
  • Stockbroker/General Securities Representative (Series 7). These licensed financial professionals are qualified to buy and sell securities.
  • Investment Company Representative (Series 6). Though not a stockbroker, these professionals are licensed to sell a limited set of securities products, including mutual funds (closed-end funds on the initial offering only), unit investment trusts, variable annuities (provided they have the applicable insurance license).
  • Registered Investment Adviser (Series 65). These experts often service affluent clients and manage their investment portfolios. They are required to act as a fiduciary.

Note: Any person holding one or more of these credentials can be a fiduciary if it is their company’s policy to act in that role, but only a registered investment advisor is required to act as a fiduciary.

How to Choose a Financial Advisor

Before you speak with a financial advisor, decide where you need help. Write down your retirement goals before you go in and understand what areas of finance a particular advisor specializes in, Purnell advises.

“Do some homework,” says Purnell. “Some [advisors] specialize in stocks and bonds, others specialize in insurance products, and still others specialize in more exotic types of investments like direct partnerships.”

It’s often best to ask around to find an advisor with a stellar reputation.

“Ask for referrals from friends and other trusted advisors. You always want to interview at least two or three people,” says Jennifer Lee, investment advisor representative, founder of Modern-Wealth, and author of “Squeeze the Juice: Live with Purpose – Then Leave a Legacy.”

“You also want someone who is fee-based,” Lee says. “so that if you work with them for a year and it doesn’t work out, you can easily move to someone else.”

Questions to Ask a Financial Advisor

When you’re meeting with a financial advisor, come ready with questions.

“One question people don’t think to ask is, ‘Why did you become a financial advisor?'” Purnell says. “It’s a critical question because it gives you a background into them and their decision to get into the industry. Did they just fall into it? Was it something they had a passion for? There are people who will have 10 or 12 jobs, and now they’re financial advisors. That doesn’t make me feel comfortable. They might not be a financial advisor a year from now.”

Once you’ve learned an advisor’s qualifications, fiduciary status, expertise, what information they’ll base their recommendations on, and how they’re compensated, Purnell says you’ll want to interview a potential advisor.

Here are some essential questions to ask a financial professional:

  • What is the average length of time you have been working with your clients? You don’t want someone who can’t keep a client.
  • Do you work with anyone else? If so, you need to know that person’s qualifications and experience.
  • Who will be my primary point of contact? Many brokers have their administrative assistants act as primary.
  • How often will you review my portfolio? You want the answer to be at least quarterly.
  • How readily available are you to speak with me personally? Does it take them 24-48 hours to get back to you, or can they be reached the same day?
  • What is your ideal client? Do you fit into the types of people they serve?
  • What do you expect from me as a client? This is a relationship. You need to know what’s expected of you to have a successful one.

Once you’re satisfied with someone, do a background check. This person will be handling your future. You want to make certain they don’t have anything negative on their record. You can find this information online at:

  • BrokerCheck gives background information on stockbrokers, financial advisors, and financial consultants, including licenses, previous work history, complaints, and administrative actions.
  • Adviserinfo offers information on an investment advisor firm or an individual investment advisor representative. You can check on their professional background and conduct, as well as current registrations, employment history, and disclosures about certain disciplinary events involving the individual.
  • State licensing boards provide similar background information as BrokerCheck and AdviserInfo.

Where to Get Free Financial and Retirement Planning Advice

If you’re not ready to find a financial advisor, you can always find free financial and retirement planning advice at your local credit union or bank. Your workplace and retirement account (401K, 457, etc.) provider should have tools on their website, as will your online broker.

Whether you get free advice or paid, “the biggest thing for people to understand is the incentive [of the advisor],” says Thanasi Panagiotakopolous, principal at LifeManaged. “Understand the advisor’s incentive and how they are compensated. That is the most important piece.”

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