So you’ve decided to hire a financial advisor in Morristown, NJ. Or maybe you’re just thinking of switching. Whatever you want to do, there’s nothing easy about the process.
An internet search will list many different professionals, with titles ranging from “financial advisor” to “financial planner,” “investment advisor” or “wealth manager.” How can you tell the difference? And more importantly, how can you be sure you hire someone who has the skills and experience to do it right?
You’re smart to be asking these questions. Many people simply ask friends or family who they recommend.
Here’s the problem with that: unless those friends and family members understand the inner workings of the financial industry, they probably don’t know what to look for either.
When your money is on the line, you need to hire based on facts, not personality or personal recommendations.
Here are eight steps to screen financial advisors to make sure you end up selecting only those who are willing and able to serve you properly.
Steps for Finding the Best Financial Advisors
The following are steps you can use, in order, to screen potential financial professionals.
1. Ethics — will they act as your fiduciary?
First, it’s best to only consider those who will act as your fiduciary. What does that mean? A fiduciary is someone who is legally required to put your interests first. If they don’t do that, you have legal recourse. Not all people who use the title financial advisor (or financial planner or wealth manager) are required to do that, so it is critical to ask. Once you confirm their intentions, it’s also important to get it in writing too (and hold on to that document).
2. Clean record — do they have any problems on their regulatory record?
Regulators in the financial industry keep websites where you can look up the disciplinary record of any financial advisor. It only takes a minute, and you definitely should take that minute before hiring a financial advisor. If the advisor has had any disciplinary actions, client complaints, arbitration or personal bankruptcy, it will show up on that website. That’s a good reason to avoid that advisor. Your money is too important—it’s best to stick with advisors who have a clean record.
3. Credentials — do they have the education and knowledge to serve you properly?
Education is important, but a general financial or accounting degree doesn’t necessarily mean someone has up-to-date knowledge about personal finance. So what does? There are several high-quality credentials that can help you find professionals who have invested in industry-specific education and passed exams evidencing their knowledge. Some of the highest quality financial advisor credentials also have experience and continuing education requirements, too.
Here are good ones to look for:
- CERTIFIED FINANCIAL PLANNER™ or CFP®: This credential is the standard for helping ensure up to date knowledge on financial planning.
- Chartered Financial Consultant® (ChFC®): this credential is similar to the financial planner, and requires study, exam and continuing education.
- Chartered Financial Analyst® or CFA®: this credential evidences advanced studies of investing and securities.
- Certified Public Accountant® or CPA®: this credential evidences study and proficiency in accounting and taxation.
- Chartered Life Underwriter® (CLU®): this credential evidences the study and understanding of personal risk management and life insurance planning issues.
While there are many other designations, not all are equal. Some don’t require much more than attendance at a short course and passing a multiple-choice quiz. So be sure to look for the credentials that matter.
The US Securities & Exchange Commission maintains a website that allows you to look up each credential you see and find out what it took to earn it. That can help you determine what’s helpful to you, or whether the credential is more marketing than anything else. You can find and explore that resource here.
4. Experience — how many years/decades have they been helping people plan their financial futures?
Along with specialized training, anyone helping you manage your money needs something else: experience. And the more, the better. Why? Because everyone has a learning curve. You shouldn’t let your money be a part of one.
Always ask how many years of wealth management experience the advisor and firm has. When it comes to experience, think in terms of decades, not just years. Sometimes financial firms get hit hard during recessions and don’t survive. You need to work with a firm and an advisor who has survived and thrived through all types of markets.
So be sure to ask a prospective advisor this crucial question: “tell me about your direct experience helping people improve their financial lives”. That’s extremely important, so listen carefully when they answer.
5. Comfort level — will you feel comfortable working with this firm?
So far, anyone who has passed your first four steps will likely be a solid, qualified candidate. The next questions can help you fine-tune who is a good fit for you.
Money is personal. You need to have someone you feel comfortable talking to, because you’ll be discussing very personal things, like your life dreams, your goals, savings, debt, and even planning what happens when you die. So you need to find someone who’s approachable and who makes you feel comfortable.
You might prefer working with a man, or a woman, or maybe someone your age. Or maybe that doesn’t matter to you. Whatever it is, give it some thought. You just want to feel comfortable so you’re motivated to stay on track with your financial goals.
6. Philosophy — what’s their investing and money philosophy?
During long bull markets, investing can seem very easy. But if you think back to 2008, or other times the market started falling, it can get scary fast. That’s why we also recommend you hire someone who has an investment and money philosophy that you understand and agree with. When you understand why your money is invested a certain way, it can help you feel more comfortable when the markets drop in value.
7. Communication — how will they stay in touch with you?
If you have a question about your money, you probably need a quick answer. At those times, you don’t want to be working with someone who doesn’t call you back for several days.
So be upfront and ask how quickly calls and emails are returned. What happens when your primary contact is out of the office or on vacation? Make sure the office has a sound system to get you the answers you need.
The other aspect of communication is meetings. Whether in person or by phone, meetings can keep you motivated so you stay on track with your savings goals. But an annual meeting only goes so far, so you may be better served by a firm that meets with you more often.
8. Services included — will you outgrow this firm?
Sometimes people leave an advisor because they have outgrown his or her services. Maybe they originally went to the advisor for simple financial plans and investment management, but now their financial lives are more complex. They might need estate planning, tax planning, insurance, annuities, and long-term care. Or maybe they are business owners who would rather find a firm that helps with their employee benefits and retirement plan, too.
Changing advisors can be a hassle and also very awkward, so I recommend that you look ahead and find a firm that you’re not likely to outgrow:
Does the firm provide comprehensive financial planning and retirement planning?
Can the firm help you with tax planning and tax-efficient investing?
How about estate planning and charitable giving planning?
Can they help you find cost-effective insurance policies?
How about college funding?
Is the firm able to help with employee benefits and retirement plans?
While you may not need all of these financial services today, hiring a firm that provides a wider scope may save you time and headaches in the future.
What’s in a name?
Finally, at the beginning of this article, we talked about different titles in use by financial professionals. What’s the difference between a financial advisor, financial planner, investment advisor and wealth manager? Turns out—not much. There’s no requirement that stops people from using a particular title, so these are not that meaningful. Our advice? Forget about the title, and look for someone who passes all these steps and is also a good fit for you personally.
