How to hire a financial adviser.


Hiring a financial adviser can be a daunting task. Often, you’re seeking out someone who is currently a stranger to form what (you hope) will be a long-term relationship, and this person will know very intimate details about your financial (and otherwise) life. In many respects you go “deeper”, faster with a financial adviser than you do in most dating relationships! How many second dates have you been on where you shared your bank account balances?

Complicating the issue further is the myriad titles, designations, products, affiliations and other foreign language items you have to interpret when hiring your “guru”.

So, odd as it may seem coming from a financial adviser’s blog, I thought it might be helpful if I offered some helpful tips to demystify this process a bit. Several of these are things I’ve noticed from very astute clients over the years who have asked me excellent questions during the “interview” process.

What is a Financial Adviser?

We may as well start from the beginning. The term “Financial Adviser” is pretty ambiguous. As is currently stands, nearly anyone can hold themselves out as a financial adviser, regardless of qualifications and/or experience. So, to start this process, let's try to separate the wheat from the chaff.

What you're looking for here - a true “Financial Adviser” - is a professional who has the technical skill & expertise to help you with a broad array of financial issues and coordinate your entire financial life. I always like to say the job I'm applying for is to be someone's personal CFO. This is quite different from a professional who has intimate knowledge of one or two financial areas, like an adviser who focuses their practice solely on accounting or or investment management or insurance sales.

As an illustration: your CPA, while having an intimate knowledge of one particular financial area – taxes – may not necessarily have the skill set to paint with the broad strokes in order to oversee your complete financial picture. Now, I’m not disparaging CPA’s - some of them are actually excellent financial advisers as well– just trying to clarify what I mean by “broad array” of financial issues.

Do I need a Financial Adviser?

Yes. Probably.

Personally, I am a huge believer in a DIY approach for many things in life. I love learning something new, taking on a scary task and crushing it with the help of the experts on YouTube. I would encourage everyone, whether engaging an adviser or not, to educate themselves on the financial issues they’re seeking help with. If you do move forward with an adviser, you’ll start from a much stronger position having researched the deal yourself.

In my (admittedly biased) opinion, there is no substitute for a holistic financial adviser when it comes to coordinating your entire financial life. It’s very difficult for most working adults to commit the time to both gain the necessary expertise and also to follow through on diligently coordinating everything.

According to the Wall Street Journal, “Procrastination can cause all sorts of money problems or unrealized potential, so it pays to have someone riding you to stay on track."

Money problems are easy to feel and quantify; lost opportunity cost and unrealized potential are actually the biggest factors in people not reaching their full financial potential and they'e very hard to feel and see unless you have a professional guiding you.

According to moi – when you don’t have someone holding you accountable you don’t get the same results. You see evidence of this with virtually any successful person – professional athletes have coaches & trainers, successful entrepreneurs have a board of directors, etc.

What should I look for in an adviser?

As mentioned, the definition of “financial adviser” is pretty vague and can mean a lot of different things. There are a multitude of different designations and roles which advisers portend to fill. So, some key things to look for in hiring your adviser:

Fiduciary Standard

A fiduciary is someone who, legally, must place your interest ahead of their own. It is actually the highest standard of care in existence within our US legal code.

I hate to start off with a fancy legal term, but this is really important. There are two sides to the advice world. Some advisers, mainly those who work for large wire-houses, are held to a Suitability Standard when giving advice. This means the advice they give must be suitable for your situation, not that it must necessarily be the best for your situation. This is a low level of responsibility to the client, and it exists mainly because of the way these advisers are compensated.

Most wire-house and broker-dealer advisers are paid, in some form or another, via a commission for selling a sponsored or proprietary product (mutual fund, annuity, etc). Quite often, those products are not actually the best solution for the client at hand, so they can’t call themselves fiduciaries. If your adviser's business card says "Registered Rep", he or she cannot be a fiduciary.

Here's another way to state it from the NY Times: "Brokers, who may call themselves advisers, don’t necessarily carry any of these credentials. Instead, they may simply pass licensing exams that permit them to sell certain investments. Outside of your retirement money, they are required only to recommend products that are “suitable,” which isn’t necessarily the best or most cost-effective. And why should you settle for less?"

So, who is a fiduciary? A CFP® professional who is a “Registered Investment Adviser” or “Investment Adviser Representative” is a fiduciary at all times. A CFP® professional who works for a broker dealer or wire-house may or may not be acting as your fiduciary - it will be important to ask them. It largely depends on what they're able to offer you and the scope of work they're doing on your behalf.

Credentials

There are a lot of advisers out there. Since you don’t want to start with the top of the phone book, plop your finger down on “A” and start making calls, you need a simple way to be able to pare down the list. An easy way to do this is to only reach out to advisers who have obtained a respected, professional certification. .

There is a lot of alphabet soup out there when it comes to adviser certifications. Here is a brief sampling, and this is by no means exhaustive:

CPC - Certified Pension Consultant

QPFC - Qualified Plan Financial Consultant

CRPS - Chartered Retirement Plans Specialist

CISP - Certified IRA Services Professional

CRSP - Certified Retirement Services Professional

CEBS - Certified Employee Benefit Specialist

ChFC - Chartered Financial Consultant

CFP® - Certified Financial Planner™

Some of these designations can be gotten by logging into a virtual classroom for a few hours, and some require hundreds of hours of study and testing over the course of one or more years. The most widely recognized and respected credential program for a holistic financial adviser is the CFP® or Certified Financial Planner™ designation

Beyond the rigorous training and ethical boundaries to which a CFP® applicant commits themselves, the CFP® designation is supported and enforced by the CFP® Board. This is a large, well-run and well-funded organization that exists for the sole purpose of advancing the profession and enforcing the ethical standard of the CFP® mark.

No other certification program has the infrastructure behind it to hold its designee accountable after certification as the CFP® Board. This is really the cream of the crop of the personal financial planning designations, and its where I’d start.

Now, this is not a guarantee that you’re going to end up with a great fit, but limiting your search to CFP® professionals should eliminate a lot of the riff-raff and product pushers.

People Skills

Technical skills should be a given at this point. If you’re working with a CFP® who is your fiduciary, there’s a good chance that you’re dealing with someone who has the technical skill to carry forth your personal financial planning strategy.

Now, very importantly, you should consider the non-technical skills of that individual. What I mean is: this person should be relateable, should display empathy, should have extremely good listening skills and demonstrate a solid ethical background. Remember, you’re forming a long term, intimate relationship.

You don’t want to feel awkward, you don’t want to feel stupid; you don’t want to feel anything but encouraged and reinforced when you go in to meet with your adviser. It should feel that way the very first time, and if it doesn’t it’s probably not the right fit. If you had that first meeting and the adviser talked the whole time and you barely got a word in, walk away. A good adviser knows they can’t do an effective job unless they're listening more than they talk.

What questions should I ask?

Even though you may not have confidence in your own financial knowledge, you should approach the hiring of an adviser like a job interview. That’s what it is, anyways. If you have had the experience of hiring someone in your career, just mimic that situation. If not, just pretend you’re hiring someone to watch your kids. Seriously. Your financial future is that important; you take time away from your kids to make money, ergo money must be important too. You should go in with a prepared list of questions, such as:

  1. Are you a fiduciary?

  2. How long have you been in the business?

  3. What type of clients do you normally work with?

  4. What is your investment philosophy?

  5. How do you make money?

  6. What services do you include?

  7. How often will you monitor my plan?

  8. How much access will I have to you?

  9. What are your potential conflicts of interest?

You’re looking for human answers to these questions. Be impressed with candor, be wary of frivolousness such as “oh, here’s my cell call me 24/7”.

What should I watch out for?

On the flip side, there are some red flags to be aware of. Remember, it’s a job interview. If you don’t have a good feeling about a job applicant, you politely walk away and move on to the next. You don’t want that person on your payroll.

  1. If the adviser wants you to sign up now, like today, before you leave.

  2. If the adviser claims he can beat the market for you.

  3. If the adviser claims he has strategies that no one else has.

  4. If the adviser has any red flags in his background. Do your due diligence! A simple search will tell you if he/she is currently credentialed, if they’ve had any bankruptcies or if they’ve had disciplinary action. The adviser will be overseen by either FINRA or the SEC, and you can check here:

  5. FINRA: https://brokercheck.finra.org

  6. SEC: https://www.adviserinfo.sec.gov/IAPD/default.aspx

  7. You can validate a CFP® certification here: https://www.cfp.net/utility/verify-an-individual-s-cfp-certification-and-background

How do I find an adviser?

So, if you’re tracking with me here you’re looking for a CFP® professional. I’d start by asking people you know and trust. If that fails, go out to social media, a professional association, or Angie’s List. You can also search directly on the CFP® Board’s website here: https://www.cfp.net/utility/find-a-cfp-professional/.

Some will have minimum investable asset requirements, some may offer hourly billing or flat fees, etc. Be candid about your situation and hopefully the adviser will reciprocate and let you know whether or not they think you are a good fit for them. As we all learned in our dating years; sometimes it’s not them it’s you.

As always, I'm happy to field any questions if you want to reach out. It may go without saying, but I'll say it anyways - I am a CFP® professional and I operate through a "Registered Investment Adviser"; I am a fiduciary for my clients at all times and with all financial matters. I am fee based and provide my clients with holistic, total-picture financial modeling.

Would love to chat more on your personal situation - you can schedule directly on my calendar with the link below.

Thanks for reading!

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