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Tips on Choosing a Financial Advisor: Smart Investing

As with almost all professions – some financial advisors are more “client centered” and others are more “self centered”.

With this in mind, realize that there are certainly many ethical, respectable financial advisors out there who will persuade you toward decisions that will help you meet your savings goals. However, do not ever be afraid to question where certain “hidden” fees come from and if you think an advisor is giving you bad advice to cushion his/her own commission, do not be afraid to obtain a second opinion.

 According to Richard Cordray, Director of the Consumer Financial Protection Bureau, “Sometimes bad advice can be even worse than no advice at all.” President Obama, along with the US Dept of Labor and the White House Council of Economic Advisers, has worked to better financial protection for consumers through stricter standards for brokers, advisers, and others who recommend retirement account investments. In short, these advisers are required to abide by their fiduciary duty – that is, they are required to give advice based on what they know to be in the best interest of their clients and nothing else. 

So now the question arises, “How do I know if my adviser is ‘fiduciary’? How do I know if he or she’s ethical?” The following tips can really help with that judgment call, but also, consider a book called Independent Financial Planning: Your Ultimate Guide to Finding and Choosing the Right Financial Planner by Michael Garry if you’re really wanting to research the issue. Also, keep in mind that comprehensive financial planning and investment advice may include not only retirement topics, but also tax planning, estate planning, college funding, budgeting, and debt management. So try to obtain an adviser who can give you good advice in all of these categories.

Now, for the tips:

  1. Do the legwork. Do your own initial research – whether that be asking friends or trusted community members or searching reliable directories. Narrow your list down to about 3 advisers and set up meetings with each of them. 
  2. Beware of free dinner seminars. Many advisers use these to attract clients with a goal to sell investment, insurance or financial products at the seminar after the dinner or during follow up calls. 
  3. Don’t fall for the false promises. Keywords/phrases that are positives/good signs: goals, diversified, index mutual funds. Keywords/phrases that are negatives/bad signs: guaranteed, hot stocks, beat the market. 
  4. Gauge comfort level. This adviser should be an honest person whom you will trust and be comfortable sharing personal information with as you may have to discuss financial crunches, job losses, and other times of financial stress with them. 
  5. Don’t assume advisers are equally qualified. Scarily, “financial adviser” is not a regulated designation. Anyone can call himself by this title if he so chooses. So be sure to ask about experiences and references. Ask about education, employment history, licenses and certifications – and do not be afraid to ask for some proof (again, references!). A CFP, or certified financial planner, is a respected designation – maybe a background in accounting or finance or specifically a financial planning major. 
  6. Ask about compensation! This can be awkward but it’s important because it’s how you will weed out those with obvious conflicts of interest. Fee-only planners offer the least amount of conflicts of interest because they are paid by you – not from investment or insurance company kickbacks. Beware of planners who call themselves “fee-based” though as this is not the same as “fee-only”. Fee-based planners are commission based. For a fee-only planner, 1% is a reasonable percentage of your assets under management for the planner to receive. Now, do not think that commission based is a bad thing; it’s not. Many good advisers are paid on commission, but you should request full disclosure. Other forms of payment for the advisers/planners include hourly and per-project basis – none of which are inherently bad; some may just warrant more disclosure and discussion than others. 
  7. Do some reconnaissance. Ask the adviser for a list of client references as well as a copy of his/her Form ADV – information about how he/she is paid and any disciplinary actions. Ask specifically to see Parts I and II of the ADV. Some other places to research your potential adviser include: SEC Investment Adviser Public Disclosure Database at, FINRA Broker Check at, with your state insurance regulator at, and your state securities regulator at 
  8. Ask whether you are a typical client. If they’re used to dealing with millionaires and you’re trying to invest $100K, you probably won’t get their full attention. Ask whether you would be dealing directly with the adviser or with a junior associate. 
  9. Do not tune out. Think of your adviser/planner as more of a coach than someone who just does things for you. A good rule of thumb is to meet with your adviser once a year for a review and always stay engaged during meetings and up-to-date with exactly what’s going on with your investments. 
  10. Consider robo-advisers. These online, automated devices are often very worthwhile and useful for relatively simple and typical situations. However, if you have a more unique situation, their programmed algorithms may not adapt well to your specific needs. Many experts say the jury is still out on the quality of robo-advisers, but if you’re interested, some to consider include: Wealthfront, Betterment, Vanguard Personal Advisor Services, FutureAdvisor, LearnVest, Personal Capital, and SigFig.