How to Hire a Financial Advisor
You likely get lots of invitations in the mail to attend free meal seminars touting ways to get guaranteed income in retirement. Maybe “senior specialists” have reached out to you with promises of investments that offer high returns with low risk. Or perhaps your neighbor has a guy who’s been helping him with his retirement planning and wants to set you up with him.
The offers might seem tempting. However, if your parents need a solid financial plan to ensure they live comfortably in retirement and have the resources to pay for any care they might need, they need to find the right professional to craft that plan.
“Older adults can’t afford to be wrong on this decision,” says Pam Krueger, investor advocate and founder of Wealthramp, a complimentary referral service to vetted, fiduciary financial advisors. She says it’s important to take your time to find someone who has competence, ethics and integrity.
What to look for in a financial advisor
Plenty of people claim to be financial advisors. However, it’s important to look for someone who is an actual advisor who will work in your best interest rather than a broker-dealer or sales representative from an insurance company, Krueger says. “There’s nothing wrong with sales reps, but they’re not advisors,” she says. “They work for the brokerage firm.” They don't work for you.
Broker-dealers can be paid by commission on products they sell, so they have an incentive to push products that earn them commissions. They must adhere to a suitability standard, which requires them to make suitable recommendations. However, they are not required to put their clients’ interests above theirs.
To find an advisor who will work in your best interest, look for the following:
- A fiduciary: This is a legal principle, not a state of mind, Krueger says. Most people in the financial industry will claim that they work in clients’ best interest. However, only a fiduciary is required by law to do so. Ask advisors whether they are fiduciaries and get it in writing.
- Fee-only: It’s best to work with an advisor who is paid directly by clients rather than by commissions on products sold. Some advisors are paid by both fees and commissions. However, Krueger advises to work with a fee-only advisor to avoid any conflict of interest.
Professional credentials to consider
There’s an alphabet soup of designations and credentials for advisors who specialize in working with retirees, Krueger says. “I can count more than a dozen retirement credentials and licenses advisors want to wear on their sleeves,” she says. However, some credentials carry weight because they require rigorous training, continuing education and adherence to ethical standards.
- CFP® professional: The Certified Financial Planner™ certification requires extensive training, experience and a commitment to act as a fiduciary.
- CRPC®: The College for Financial Planning, which originated the CFP, offers the Chartered Retirement Planning Counselor certification. The designation is considered an industry benchmark for retirement planning credentials.
- CRC®: The Certified Retirement Counselor designation offered by the International Foundation for Retirement Education requires passing an exam and having two years of retirement-related profession experience and adherence to a code of ethics.
- RICP®: The Retirement Income Certified Professional® designation is offered through The American College of Financial Services and requires coursework and exams, three years of business experience and compliance with ethics standards.
- RMA®: The Retirement Management Advisor® designation is sponsored by the Investments and Wealth Institute and requires coursework and an exam, three years of experience and adherence to a code of responsibility.
Regardless of the designation, the advisor should be registered as required by the Securities and Exchange Commission, Financial Industry Regulatory Authority and state regulators. You can use the SEC’s Investment Advisor Public Disclosure site and the FINRA BrokerCheck to view registrations for advisors and firms.
It’s important to look for someone who is an actual advisor who will work in your best interest.
Krueger cautions against working with people who market themselves as “senior specialists.” This is not a credential but rather a label people use to attract older adults as clients. Also be aware that even if an advisor has one of the credentials listed above—or other official industry credentials—that doesn’t ensure the advisor is right for you. “You can’t shop on credentials alone,” Krueger says.
How to find the right advisor
Looking for an advisor who is a fee-only fiduciary is a good place to start. However, you’ll need to dig deeper to find the right advisor.
Start by considering what you need in an advisor. Do you just want a little help figuring out what steps to take to protect your retirement income? Or do you want someone with a heavy hand who can take over all aspects of your retirement planning.
Then search for fee-only fiduciary advisors by using a free service such as Wealthramp, the Garrett Planning Network and the National Association of Personal Financial Advisors. Create a list of advisors and do your homework by looking up each firm’s Form ADV on the SEC’s Investment Advisor Public Disclosure site. The form will show the services the firm offers, how it is compensated, number of employees, number of clients and any disciplinary action. “It’s a fantastic way to spot anything that doesn’t feel like it fits with what you want to do,” Krueger says.
You should then call the advisors or meet with them in person to gather more information and determine which one is the right one. Be prepared to ask the following questions:
- How are you compensated?
- Are you required to uphold the fiduciary standard at all times?
- Have you ever been disciplined by any regulator or sued by a client?
- Do you only offer investment advice or can you create a comprehensive financial plan?
- Do you have many clients like me?
- Can you provide references from your existing clients?
- Can you share an example of a plan you created for a client similar to me?
NAPFA has a Financial Advisor Comparison Tool with a comprehensive list of questions to ask prospective advisors and recommended responses to each question. Take the time to thoroughly vet each advisor to find someone you are comfortable with and who will provide you with the help you need. The goal is to help ease your your financial stress. “The last thing you want to do is introduce a third party and make a mistake,” Krueger says.
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