As with many things in life, when it comes to finances, it can be helpful to have a plan. That's why many people work with professionals to get a handle on their money situation and reach their goals. These pros may go by the name of financial advisor, wealth manager, or financial planner, among others. Unfortunately, finding financial professionals you can trust—and afford—isn't always easy. Here are a few ways to get started.
Learn the meaning of fiduciary
Quick vocab lesson: A fiduciary is someone, like an investment advisor, who is required to put your financial interests above their own. Similarly, the US Securities and Exchange Commission's Regulation Best Interest (Reg BI) requires broker-dealers' recommendations be in a customer's best interest.
Know the difference between fee-only and fee-based
It's easy to confuse these terms, which describe how a financial pro is paid. A fee-only pro makes money from clients by providing advice, knowledge, and expertise. A fee-based one also gets paid for this plus may also receive payment via commissions for selling products, brokerage fees, and the like. Consumers often misinterpret "fee-based" as meaning no commission, when in fact, a portion of income is attributed to sales-related compensation, either certain products or referrals to third parties.
Use your network and online resources
Many people start looking for a financial professional by asking people they already know for suggestions. Even if you don't think of your social circles as being plugged into the world of finance, you might be surprised by the number of people who have friends or family members working in finance—or who have consulted with financial advisors in the past. Of course, you'll still want to do your due diligence on any referrals, but having a roster of personal recommendations can springboard your search.
You may also choose to start (or continue) your search for a financial advisor by using digital tools. That could mean checking to see if your employer offers consultations with a financial planner as part of its employee benefits. Many employers already have relationships with financial companies, such as where their retirement savings plans are held, and these providers sometimes offer financial wellness programs to plan participants. Or it might be contacting a financial company you already have a relationship with (such as where your investment accounts are held) to investigate its offerings—some of which may be available for free or low cost.
If you prefer to explore other options, you can DIY your search at such resources as the CFP [Certified Financial Planner] Board, Fidelity, the Financial Planning Association, and the National Association of Personal Financial Advisors. Some allow you to filter by gender, ethnicity, language, specialty, and family structure. This kind of insight can be helpful for those looking to work with planners and financial advisors who belong to certain backgrounds themselves or who have expertise in specific types of financial situations, especially as the financial industry works toward equitable planning and advice.
Consider the credentials
As you search for a financial planner or advisor, you're likely to encounter an alphabet soup of acronyms. Here are the main ones to be aware of:
- CFP®. A certified financial planner has passed a comprehensive exam on financial planning topics, has met a threshold of performing a minimum amount of financial planning, and is held to a standard that requires them to act like a fiduciary.
- ChFC. A Chartered Financial Consultant is a lot like a CFP. Both have financial planning expertise, but their educational requirements are a little different. CFPs, for instance, must pass a cumulative final exam whereas ChFCs generally take slightly more courses than CFPs but only have exams at the end of each individual class related to financial planning.
- RIA. A Registered Investment Adviser may be a person or company that manages investment portfolios and that may offer some financial planning services. As the name implies, they must register with the US Securities and Exchange Commission (SEC) or state agencies, and they have a fiduciary duty to their clients.
- CFA®. A Chartered Financial Analyst has passed extensive exams related to financial analysis and has built an expertise in investment analysis. You're most likely to find CFAs® working for companies, though some may offer financial planning to consumers.
- CPA. A Certified Public Accountant specializes in the ins and outs of tax code. You likely won't get all your financial planning done by one unless they also have other certifications, but a financial advisor or planner may consult with a CPA when trying to determine the best tax strategy for finances. (Note: Fidelity advisors do not consult with CPAs.)
Regardless of what credential they hold, make sure you also look up a potential advisor's professional background. That means treating them like you would any other person you were considering hiring for a job: by looking at their resume or LinkedIn as well as asking for references. You can even run a free background check of sorts using the SEC's Investment Adviser Public Disclosure database or FINRA's BrokerCheck, which may help you choose a professional.
Find out your financial pro's pricing structure
Those who provide financial planning and management services generally charge for their services in a few ways, depending on what they're doing for you:
- Percentage based on assets under management (AUM). If a pro manages financial assets, they may charge based on a percentage of how much money they are handling. The industry median is 1% for up to $1 million in AUM.1 That means if they are managing $50,000 for you, the annual cost is $500. The fee could go down the more money you have with them. Some require a minimum amount of assets to take on a client.
- Hourly. You also may find financial pros who charge for their services by the hour, with the hourly rate increasing depending on the pro's experience.
- Flat fee. Some may offer their services a la carte. The cost of a financial plan depends on level of detail and advisor experience.
- Subscription. You may also find financial professionals who let you enter into a subscription or retainer relationship with them. Rates vary and may be charged quarterly or monthly.
Your financial advisor may use one of these pricing structures—or any combination of the above. Aliya Padamsee, CFA, CFP®, and a director of Financial Solutions at Fidelity suggests, "Do the math to understand how your advisor's fee structure works so you know how much you're really paying for their services. Let's say the assets you bring to your financial advisor total $100,000. The 1% fee would be $1,000, but the flat fee could be much more than that. Whereas if you had $1,000,000 with them, the lower flat fee might make more sense than a percentage. However, make sure you feel good about the quality of financial advice you're receiving, and the relationship fit, in addition to the pricing structure."
Consider multiple options
Understand what you need. For example, do you just want a plan, or do you also need help with your investments? Then, just like you probably wouldn't buy the first house you find when shopping for a home, you likely don't want to commit to a financial professional before getting a sense of what's out there. That's why James Lee, CFP® and past president of the board of the Financial Planning Association, suggests talking to at least 3 to find a fit. Evaluate candidates to find someone you feel you can trust, whose communication style is compatible with yours, and who seems to understand your values around money. "Every person is in a different place financially," he says. "Part of a good relationship is understanding an individual's life goals and priorities and making sure advice is consistent with the values they have."
Determine whether automated solutions may work for you
While everyone could benefit from financial advice, depending on where you are in your financial life, you may not have the time or money to have an ongoing relationship with a financial professional.
Those with less complex financial situations looking for low-cost investment guidance might consider a robo advisor, which provides digital portfolio management. Or instead of engaging with a pro, some choose target date funds, which invest in a diversified mix of securities that gradually adjusts to balance growth and stability throughout the life of the fund.
Though financial advisors and financial planners come with an expense, budgeting for that expense in the long term may be worthwhile. Industry studies estimate that financial advice can contribute to account growth over extended periods.