Personal Finance

Working With a Financial Adviser: Selecting the Right Planner

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Last updated on October 28, 2020 Comments: 14

This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals and described the various professional certifications to help readers start on the right track. This article looks at the research you can do to narrow down your choices, getting you to your initial meeting.

When you select a financial planner, consider it like entering a long-term relationship. If the professional isn’t right for you, you don’t want to waste your time on more than a first date. The best relationship is with someone who understands you — your goals, your situation, your background, your needs, and your desires.

The Certification

Just like you have non-compromising criteria for potential spouses, such as religion, political leaning, or sex, you shouldn’t settle for a less than stellar planner who doesn’t meet all of your needs. Start with the certification to narrow down your pool of potential planners.

For overall financial planning advice, the three best designations are Certified Financial Planner® (CFP), Personal Finance Specialist (PFS), and Chartered Financial Consultant (ChFC). Requiring a professional to have one of these three designations narrows the field considerably, eliminating possibly hundreds of individuals who call themselves financial planner in your vicinity.

Even after this elimination, you could have hundreds of listings. A quick search helped me determine that within five miles of Princeton, New Jersey, there are at least 140 Certified Financial Planners, Personal Finance Specialists, and Chartered Financial Consultants. The number would double if I expand the search to fifteen miles.

The Personal Recommendation

It’s easier to use your social network for recommendations for dates. Your close friends understand your personality and might be able to lead you to someone who would be a good match. I found my dentist and my accountant through recommendations by friends and family, and so far, the recommendations have proven to be good. More people visit dentists regularly than financial planners, so you might have to dig deep into your network to find a quality recommendation.

With a personal referral, there is a good chance that the friend who recommends the professional has had a positive experience — and a positive experience from a friend or family member carries much more weight than a positive experience from a stranger posted on an online review website.

Online Evaluation

That doesn’t mean you should ignore information online, however. Before you schedule a meeting with a financial planner, whether recommended by a friend or not, check to ensure their certification is in good standing and they have not had any disciplinary actions. You can find this information on the websites operated by the certification boards — the Certified Financial Planner Board of Standards, the American Institute of CPAs for PFSs, and The American College for ChFCs.

Don’t stop there. The Securities and Exchange Commission keeps records on financial advisers who offer investment services. Find the planner’s Form ADV and read both parts it carefully. This will tell you if the financial adviser is paid by fees, commissions, or both. This is an important issue because you want to ensure that the advice you receive is not influenced by the planner’s own financial gain. A “fee-only” planner helps make that point. A “fee-based” listing, where the planner’s income is partly a fee and partly commission, could be a red flag.

If the financial planner isn’t registered with the SEC, and not every planner needs to be, check with your state to ensure their business can legally operate and does not have any disciplinary actions not already noted by their certification board.

The Connection

You can learn much about a person by looking at their online presence. You probably wouldn’t go on a first date without searching the Internet for mentions of their name, and the same should be true about your financial planner. You should find professional results. While online marketing isn’t the final determination of the quality of a financial professional, you might find some red flags. The financial planning firm should at minimum have a website offering business information, but look for the additional steps that planners often take to increase their professionalism online.

  • Does the primary planner operate a blog? Planners with blogs are not necessarily better than planners without blogs, but by reading a website updated frequently with information relevant to financial planning, you might be able to determine that they have a passion for their work. Conversely, if you find a personal blog that is not at all professional, and are sure the blog belongs to your financial planner, you might save yourself from wasting your time.
  • Is your primary planner published? If your planner has written and published a book 00 not necessarily an e-book, this could be a good sign. If he or she regularly contributes to major publications, there is a good chance the planner has been vetted by editors to be knowledgeable. Again, this doesn’t ensure the financial planner will be the best fit for you, but it’s a good sign.
  • Does the primary planner have an extensive LinkedIn network? Like it or not, LinkedIn is the de facto standard social network for online professionals. While LinkedIn recommendations are often worthless, a business professional should ensure that their LinkedIn profile reflects the image they wish to project. On the other hand, if the professional is more active on Facebook, spending most of their free time playing FarmVille, consider whether you want this person to be providing financial advice to you. Anyone is free to do what they like with their free time, but I would consider someone who was concerned with their professional online identity over a planner who didn’t care.

Read More: A Whole Registry of Financial Professionals – Paladin Registry Review 

The First Date

After you’ve done your research in advance and possibly discussed your financial planning needs via phone and email with a select number of finalists, it’s time to meet in person. Financial planners should offer a free initial consultation. Use this as an opportunity to interview the planner, asking about their code of ethics, fiduciary responsibility, compensation sources, experience, and financial philosophy. You’ll have the chance to describe your situation and determine how well the planner listens and understands your unique circumstances.

The first date with your financial planner is a complicated interaction, and you may benefit from not immediately entering a relationship from the first planner you meet with. When getting ready to involve someone else with your finances, it helps to take the process slowly.

There is more that goes into this initial meeting, and that will be the topic of a future article.

Article comments

Anonymous says:

It is important to follow your gut feeling with this relationship. If the two parties do not mesh well together it could be a very long brutal relationship. It is important to both be on the same page especially when personal finances are involved.

Anonymous says:

“personal recommendation” is the most affecting for me in choosing the right financial Planner. in Asia it is the most trusted way.

Anonymous says:

I’d agree with the above commenters. No form of advice is free of all conflicts, but fee-only is the most conflict free model around.

I’d also mention that while LinkedIn is a great resource to take a first look at an advisor, don’t be concerned if the advisor has no recommendations on their profile. The SEC prohibits testimonials for advisors, and the compliance community is still unsure of whether LinkedIn recommendations would include testimonials so the advisors I know just turn off that portion of the site.

Anonymous says:

I would also recommend going the fee only route. You don’t want to pay commissions, it places the planner’s priorities in the wrong place. Fee only ensures that they are working for you, not for the commission.

Anonymous says:

FYI LinkedIn may not tell you much about planners/advisors. Regulations prohibit them from using “testimonials” so depending on how the planner is registered/regulated LinkedIn recommendations are a no-no. In addition, planners may not be allowed to say much of anything on a social networking site — just who they are and the phone number to call. And blogs… that’s like playing with fire, again depending how the planner is regulated/affiliated.

Everything a planner says may have to be approved by legal counsel before publishing it online, and legal folks are increasingly conservative… especially since dot-bomb and subsequent backlashes, and since SEC/regulators still haven’t given much guidance on how to handle social networking and blogs.

Anonymous says:

Thanks for the informative article, Flexo. I have always wanted to explore the option of hiring a financial advisor and this series will help me look in the right direction.

Anonymous says:

The first date is what will make it for me. Do they try to sell me, or do I feel like they are really looking out for my best interested. Do they listen, or do I struggle with getting them to understand my perspective?

Anonymous says:

very good article flexo, I’ll be using this info when the time comes for me to select a financial adviser.

Anonymous says:

What an informative article. I had never heard of the Form ADV, but I have taken note. A lot of us who are computer oriented want to do our plan ourselves, but maybe we should consider a pro. Thanks for the guide.

Anonymous says:

Interesting comment about checking LinkedIn profiles. Do many people here refer to that as part of their initial background check whether for their financial planner, lawyer, accountant, dentist? I have personally avoided any invites to create a LinkedIn account (not popular in my field).

Anonymous says:

Good post. My completely biased comment would be to encourage your readers to work with a fee-only financial planner. They can find a fee-only member of NAPFA in their area here. Full disclosure, I am a NAPFA member.

Anonymous says:

Being a financial planner, can you share any generalities about the compensation and services offered by fee-only and commission-only planners? i.e. do most planners make equal coin regardless of how they make their money? are there products you can’t offer because you’re fee only?

I ask because a good friend of mine who’s advice I trust (disclosure: i’m not one of his clients) argues that he is able to offer more better service because some products are only offered “by commission”. So since he has to make money somehow, and since he would have to refer out for those products, he charges either fee-only or commission depending upon the client’s situation.

Anonymous says:

Certainly there are some good planners who are compensated by commission, but in general I view this arrangement as a potential conflict of interest. I’ve written several posts on this subject. link 1 and link 2 and link 3

Advisor compensation no matter what the model varies. Commissioned advice seems like it is as much about selling as anything else. BTW I would classify your friend’s model as fee-based. Fee-only is fee-only, period no exceptions. If you take commissions or accept compensation from a financial product provider you are not fee-only and, in my opinion, your advice can be tainted by this compensation.

Anonymous says:

If you were to use a fee-only planner, how would you purchase financial products and avoid paying a commission charge so that you are not, “paying twice”?

Also a red-flag I have found that many advisors/ planners “author” books and publications that are simply reprints of material produced by a marketing company with the paying customers names in the by line with nothing but a few lines of their own.