These Financial Times: How to choose a financial advisor

Taylor Schulte | These Financial Times

“Having an objective third party to help you avoid costly money mistakes, is worth every penny you would pay for it.” – Carl Richards

taylor_headshotWEB — Taylor Schulte, Financial Consultant

According to the research firm Cerulli Associates, there are approximately 300,000 financial advisors in the United States. Finding the right advisor for you and your family is not always an easy process.

If you have identified that you are in need of financial guidance, here is a list of things to consider when searching for a professional.

Professional Designations. There are plenty of good financial advisors that don’t hold a professional designation, but if you are looking for an extra layer of comfort you might consider looking for one who does. The two most recognized and respected designations in the industry are the CFP® and the CFA®.

• A CFP® — or CERTIFIED FINANCIAL PLANNER™ — has completed extensive training in financial planning, estate planning, insurance, investment, taxes, employee benefits, and retirement planning.

• The CFA® — or CHARTERED FINANCIAL ANALYST™ — this credential provides extensive training in all financial fields as well but with an added emphasis on portfolio management and the analysis of financial products.

Both designations require its certificate holders to meet certain industry experience requirements, pass the required exam(s), and adhere to the highest ethical standards in the industry.

Compensation. One of the first questions you should consider asking a financial advisor is how they are compensated. If they can’t explain it to you in a way that a six year old can understand, it might be time to look for a new candidate.

The two most common types of compensation methods are the commission model and fee-only model.

• Commission-based advisors receive a commission when they buy or sell a financial product for a client.

• Fee-only advisors have elected not to receive commissions of any form and instead charge a flat, transparent fee. This fee is typically billed as a percentage of the assets being managed, an annual fee, a monthly fee, or even an hourly fee.

Financial advisors are required to disclose their compensation method so don’t be afraid to ask.

Fiduciary. A financial advisor acting in a fiduciary capacity is required by law to put their clients’ interests ahead of their own at all times. Seems like all financial professionals should be required to be held to a fiduciary standard, right? Unfortunately, that’s not the case and you might be surprised to find out how many are not. It certainly wouldn’t hurt to ask your current or potential advisor if they adhere to the fiduciary standard.

Some other questions you might consider asking a financial advisor are: What is your investment philosophy? What is your process? How do you manage your own money? How often do you contact your clients? Will I be working with you or a junior associate? Do you have an investment minimum? Who is your ideal client?

However, your due diligence process will only take you so far. Often times, trust and personality become the deciding factor. If you trust the person and get along with them, chances are you in for a successful, longterm relationship.

For help in starting your financial advisor search, consider visiting letsmakeaplan.org, fpa.net, or brightscope.com. These websites will allow you to search for a professional based on credentials and compensation methods.

—Taylor Schulte, CFP® is a Wealth Advisor for Define Financial in Downtown San Diego. Schulte specializes in providing independent, objective, financial advice to individuals, families and businesses. He can be reached at 619-577-4002 or [email protected]. Investment Advisory services offered through Advanced Practice Advisors, LLC.