How to Find a Financial Advisor

by Rande Spiegelman, CPA, CFP®, Vice President of Financial Planning, Schwab Center for Financial Research
July 9, 2007

If your financial picture is complex, it can be a daunting task to manage your portfolio and navigate the ins and outs of retirement planning, estate planning, insurance, investments and taxes. That's where financial advisors come in.

A financial advisor is an experienced professional who can provide a wide range of financial expertise, including managing your money for you so you don't have to handle all the details yourself.

Generally speaking, financial advisors are best suited for people with at least $250,000 in liquid assets who are willing to give up day-to-day control of their portfolios (though different advisors have different minimums). This is important.

It makes little sense to hire a financial advisor only to call him or her every day to learn how your financial plan is going. After all, the idea is to develop a game plan to achieve your financial goals and objectives, and then let the advisor manage the plan so that you have more time for family, career, hobbies and so on.

A long-term relationship
Selecting a financial advisor is the first step in a long-term relationship. Your financial advisor will act as a sounding board for your ideas and help you formulate a plan for what you want to accomplish financially.

For these reasons, it's essential that you and your financial advisor share a certain chemistry and be on the same wavelength. You've got to feel comfortable asking questions. And your advisor must be able to explain the potential benefits and consequences of every aspect of your financial roadmap in a way you can understand.

How do you find a financial advisor you feel comfortable with, who will do right by you and your money? Here are some steps that can help:

Get referrals and make appointments.
Prepare for the initial consultation.
Learn how the advisor gets paid.
Verify the advisor's history, credentials and experience.

Get referrals and make appointments
Start by asking friends, relatives and business colleagues if they have a financial advisor they trust and with whom they’re comfortable. Ask other financial professionals you deal with, as well.

After all, financial professionals rarely work in isolation; they’re part of informal networks of accountants, lawyers, insurance agents and brokers. Having a trusted CPA or broker recommend a financial advisor, for example, not only makes sense, but it can also build on a relationship you've already established.

Another way to find a financial advisor is to go through a recognized public trade group, such as the Financial Planning Association or the American Institute of Certified Public Accountants.

Prepare for the initial consultation
Spend time the week before the consultation speaking with your family and outlining your goals. And remember to set aside a comfortable amount of time during the day of the meeting—you don't want to feel rushed or pressured.

Your first meeting with an advisor should be free, so use it well. Bring a list of written questions so that you can stay focused, and take notes so you can compare answers from different advisors. Here are some examples of good questions to ask:

What’s your educational background?
How long have you been in business as a professional?
What size is your firm and how many clients do you have?
What types of services do you offer?
What’s your management style and philosophy?
Do you prefer specific types of investments?
What has your past performance been for clients with investment needs and risk tolerances similar to mine?
How much money do you manage?
How are you compensated?
Will I maintain control of my assets and where will they be held?
With whom will I be working?

Maintain a professional tone and make sure you get answers to your questions. True experts can explain even complex topics—hold a financial advisor to the same standard. And don't be afraid to ask any question, no matter how silly you think it might be.

Learn how the advisor gets paid
It’s perfectly reasonable to go into the details of how the advisor is compensated, along with the services and attention you would receive in return.

Some advisors receive a flat fee for their services, while others take a fee based on assets under management. For example, if you have $250,000 you'd like the advisor to manage, a typical fee would be 1%, or $2,500 per year (as assets under management go up, the 1% fee typically goes down; fee “breakpoints” vary). You also want to know whether the financial advisor receives any commission, reimbursement or incentive for selling specific types of investments.

Lastly, remember to ask how much a follow-up meeting would cost. You don't want to receive an unexpected bill for a second consultation.

Verify the advisor's history, credentials and experience
The Securities and Exchange Commission requires advisors who charge a fee to manage your money to register what's known as form ADV either with the state (those who manage less than $25 million) or with the SEC (those who manage $25 million or more).

The ADV provides pertinent information about the financial advisor, including:

Educational background.
Financial management experience.
How the advisor is compensated.
Any disciplinary actions or complaints.

Some financial advisors are also licensed securities brokers. Those who are should have a Central Registration Depository file, which provides information similar to the form ADV (which is just for financial advisors). CRD files are available through your state securities agency or the Financial Industry Regulatory Authority (FINRA).

Along with an advisor's history, take a look at the acronyms that appear after his or her name. Such professional credentials denote a level of education and experience in the financial service business. Here are a few of the qualifications you may encounter:

CFP®—Certified Financial Planner. More info
ChFC®—Chartered Financial Consultant. More info
CPA—Certified Public Accountant. More info
CFA—Chartered Financial Analyst. More info

Lastly, ask for a list of clients who could serve as references. Be sure to call them and ask about the quality of service and the fee arrangements. You want to make sure all the information you receive is consistent.

Final thoughts
Don't be discouraged if you haven't found an advisor you feel comfortable with after your first few interviews. Stick with it. With a little effort, and these guidelines in hand, you’ll be well on your way to finding a financial advisor who's right for you.

Important Disclosures

The information presented does not consider your particular investment objectives or financial situation and does not make personalized recommendations.

The Web sites named in this article are not affiliated with, sponsored by or endorsed by Charles Schwab & Co., Inc. They have not beenreviewed by Schwab and Schwab makes no representations about their content.

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