How to Find a Financial Advisor Online and Choose the Right Type of Advisor
When we get sick, we go to the doctor. When we get into legal trouble, we hire a lawyer. Yet, somehow people believe that they should be able to navigate the ever increasingly perilous financial waters without professional help.
– Robert Johnson (CFA, CAIA), a professor at Creighton University.
Managing money can be hard, especially for long-term goals like buying a house or retirement. Many people go it alone, but if you want to hire professional help, sorting through all the options is almost as overwhelming as just managing things yourself. So how do you decide what type of help to get? And how can you do this all from the comfort of your couch? We talked with financial advisors to find out how to find the best advisor for you–all without leaving your home.
What is a Financial Advisor?
A financial advisor helps you with your finances, sometimes even managing them for you. This is a large category that includes financial consultants, financial planners, investment managers, and even robo-advisors. “By some counts, 600,000 people call themselves a financial advisor,” said Mark Wilson (APA, CFP) of MILE Wealth Management.
Before you start searching, you should get clear on what type of help you want. Are you looking for advice on starting a business? Or maybe you are fresh out of college and want to know how to put yourself on the best path for an early retirement. Knowing your financial goals will help you drill down on what type of help you need–be it financial advisor, financial planner, or robo advisor.
What is the Difference Between a Financial Advisor and a Financial Planner?
A financial advisor is someone who can help manage your money. Financial planners are also financial advisors, but not all financial advisors qualify as financial planners.
Financial planners have gone through some sort of training, like the rigorous exams for certified financial planner (CFP). A financial planner should be able to help you create a plan to meet long-term financial goals.
A financial advisor might be an insurance agent, an estate planner, a banker, a stockbroker, or a financial planer.
Do I Need a Financial Advisor?
If you are looking for professional help managing your money or creating long-term goals, a professional financial planner might be able to help you. And if you are confronting a big life change–getting married or divorced, buying a house, starting/selling a business–it might be a good time to check with a professional. But only you can answer this question.
How Much Does a Financial Advisor Cost?
You will always pay for a service, even if you don’t think you are. Almost every expert I talked to said to ask up front about how your advisor makes their money. It’s not a rude question. “I can’t tell you how many times a client would tell me that their advisor doesn’t charge them anything for advice. All this means is that you don’t see what you are paying. You are still paying, and oftentimes paying more than those that see the fee directly on their statement,” said Matt Elliott of Pulse Financial Planning.
There are two main ways advisors are paid: commission and fees.
Commissions means your advisor is getting paid when they sell you something, like a stock or an insurance policy. “This advisor gets paid each time they sell you an investment, an insurance policy, or an annuity. The issue here is not the advisor getting paid, rather, they have an inherent incentive to put you into products that pay them and ignore others. This can create a conflict of interest in the client-advisor relationship,” said Elliott. You want your advisor working for you and your financial goals, not for the goals of their own company.
Fee-based means you pay the advisor for their work. But here’s where things get tricky, according to Elliott. An advisor who is fee-based may accept both commissions and fees. “If [they use] a combination, then find out which part is which,” says My Financial Planner founder Stephanie Genkin (CFP).
It’s only if your advisor says they are fee-only that you know there aren’t potential conflicts. Elliott stressed this point: “A fee-only advisor accepts payments from one source – directly from clients. That means your advisor never gets compensated by any third parties via commission, referral fees, mutual funds, or any other method.”
If you choose a fee-only advisor, there are still different types of payment structures, including hourly, flat-fees, or a percentage of your assets under management.
There are three basic buckets of how you might pay, according to Aviva Pinto (CDFA®,CDS™) of Wealthspire Advisors:
- Hourly Consultation – For financially savvy people facing a big decision, like buying/selling a business, Pinto says this is a great option.
- Comprehensive Financial Planning and Strategy – For those looking for a comprehensive strategy to long-term planning. Pinto says this is usually offered for a flat fee or on an hourly-rate.
- Asset management – For those wanting a long-term partner who can take over management of your money and investment. This service is typically offered as a percentage of the assets they manage on your behalf.
These fees will all range, depending on location and expertise, but you can expect that a fee-only CFP might charge between $200 – $400 an hour. For assets under management, this might be a charge of about 1% of your portfolio balance each year.
How to Find a Financial Advisor
Many of the experts I spoke to recommended getting a personal or professional referral. This is a great option if you know your friend, parent, or colleague is managing their money well. But if you don’t have this option or are looking for an advisor who specializes in a certain area (helping families, divorce, retirement, etc.), there are plenty of websites beyond google that can help you search. The ones listed below break down into two categories: non-referral searches and customized searches by third party companies (that typically make money from their referrals).
Finding a Financial Advisor Online:
For sites that don’t make money off referrals, they typically applied specialized criteria, like only listing CFP or fee-only advisors. These include:
- Let’s Make a Plan – This site searches for CFP professionals by geography.
- NAPFA – This site searches fee-only financial advisors by location.
- XY Planning Network – This site is for young professionals and lists fee-only advisors who are sworn fiduciaries and hold the CFP designation.
- Fee Only Network – This site allows you to search by location for a fee-only financial planner.
Customized searches by third parties:
- Paladin Registry – This site has you fill out a few questions and then connects you to one to three financial advisors, financial planners, or investment advisors. For more info, read our full review.
- SmartAsset – Like HarnessWealth (listed below), this site has you answer a few questions and then match you with three financial advisors.
- HarnessWealth – This site asks you to complete a profile and then sends you personalized referrals.
- ZoeFinancial – Similar to HarnessWealth and SmartAsset, this site connects you with fee-only financial advisors.
How to Choose a Financial Advisor
Once you have found a few options that fulfill your needs, experts suggest interviewing your top choices. “I’d recommend chatting with at least three potential advisors over the phone to learn more about their personality, fees, and how they might work with you,” says Wilson. Make sure to include a question about how they get paid, even if you found information about this online. A financial advisor should not take offense to this question!
Most advisors should be able to meet remotely, so don’t let fear of leaving the house stop you from finding a good advisor.
Questions to Ask a Financial Advisor:
Are you a Fiduciary? “Financial advisors who are fiduciaries have pledged to act in their client’s best interest at all times. This may seem like an obvious arrangement; however many advisors still abide by a looser ‘suitability’ standard, meaning they are permitted to recommend products or services to a consumer from which they (the advisor) collect financial benefits, so long as the recommendation can be defended as “suitable,’” says Aviva Pinto.
If you ask an advisor if they are a fiduciary and they can’t give you a solid yes, Genkin says it means “their allegiance is to ‘the house.’ They are fiduciaries to their financial institutions. Do you really want to work with someone who can’t say yes?” She adds that “They never say no, they obfuscate by saying things like we’d like to help you realize your goals.”
This was the biggest piece of advice among the experts I talked to. In fact, Johnson said: “If a potential financial advisor is not a fiduciary, look elsewhere. In fact, if a financial advisor isn’t a fiduciary, run away!”
Do You Specialize in My Area of Need? Every advisor will have different areas of expertise. Make sure what you are looking for matches up with what they can offer. If the advisor you are talking to specializes in something else, ask them for their recommendations–they should have some idea of who could help you. For example, Kali Roberge, COO of Beyond Your Hammock says, “We only work with clients in their 30s and 40s. So, when people reach out to work with us but they’re about to retire, or they just graduated college three years ago, we usually refer them to other planners in our network who can better serve their needs.”
What Are Your Qualifications? Almost everyone I talked to emphasized the need to work with a certified financial planner (CFP). Someone with this designation has completed the CFP curriculum and passed an exam that covers investments, taxes, risk management, retirement, and estate planning. You can double-check this by searching on the Let’s Make a Plan website. You might also look for someone who holds the Chartered Financial Analyst (CFA) designation.
How Do You Make Money? This was covered in the section on costs, but it’s always a good idea to ask exactly how your advisor makes money. Most people I talked to said having a fee-only advisor was essential. A few said that having some combination of fee and commission was acceptable, but only if you understood what percentage of their income was coming from commissions and how that was affecting their advice.
How Do You Communicate? You’ll want to know how your advisor will communicate with you–over email, phone, or in person–and how often.
Are You Tech Savvy? If you want to meet with your advisor virtually or take advantage of new software, it helps to have an advisor who understands tech. “The industry is changing rapidly and getting personal advice from a financial advisor no longer requires in-person meetings. Find an advisor that is not only open to using new technology in their firm but embraces and promotes it,” says Austin Costello (CFP), Director of Client Experience for InvestRx.
Tell Me About the Last Time a Client Fired You. Beyond the standard questions, Larry Solomon (MBA, CFP) of Mercer Advisors advises people to ask potential advisors about the last time they were fired by a client (without divulging any personal or sensitive information). The rational? “Gaining and losing clients is a natural part of the financial advice business, so if the advisor says they never lost a customer, they are lying, and this would be a major red flag and deal breaker, as far as we are concerned. If they struggle with a response or decline to answer, that is also a red flag. Successful advisors will be acutely aware of new business they’ve landed as well as those customers they’ve lost,” he said.
Double-Check Their Background:
If you plan on taking financial advice from someone or let them manage your assets, it’s worth the time to dig around a bit. If you’ve narrowed down your top choices, check to make sure they are as good as they sound. Before you decide to work with an advisor, Wilson suggests you “check their regulatory background (brokercheck) to make sure you are not working with anyone with ‘disclosure events.’” A disclosure event refers to regulatory, criminal, or other disciplinary actions.
You can also check the Investment Adviser Public Disclosure database.
Once you have interviewed potential financial planners and done your background check, this next step is all about what feels like the right fit. Did you connect with any of the financial planners? Use your best judgement on this and don’t feel pressured into working with someone.
What about Robo Advisors?
If your main concern is investment management and you don’t need the personalized attention a real person can give you, robo advisors can be a good tool. They are almost always cheaper than a financial planner because they offer investment management, not holistic financial planning.
Many robo advisors charge 0.25% of your account balance. If you have a small amount of money to invest, many robo advisors allow you to start investing with just $500.
Robo advisors use algorithms to recommend investment portfolios, often built on exchange traded funds (ETFs) and index funds.
Can a Robo Advisor Help with My 401(k)?
Robo Advisors have entered the 401(k) landscape too. This may be especially helpful to investors with smaller portfolios. If your employer doesn’t offer a 401(k), it might be because you work for a small to medium sized company that finds the costs too much of a burden. Consider asking your HR department about a robo advisor, such as Betterment or Blooom. Silicon Valley has set its sights on disrupting the 401(k) space, which may help bring down costs and make it easier for more Americans to invest for retirement.
If your company has a 401(k), but you just need more help managing it, there are still options. Blooom is a robo advisor focused specifically on 401(k)s that you can use even if your employer doesn’t.
Once you understand your own financial goals, conduct a little internet sleuthing about potential financial planners, and interview your top candidates, you should have a pretty good feel for who is right for you (or if you’d rather go with a robo advisor or do things on your own).