How to Choose a Financial Advisor



So you’ve decided to find someone to help you with your financial future.  And, like a lot of other things in the internet age, Dr. Google has provided you with a firehose of information and options.  Every Wall St company with deep pockets shows you what you want to see at the top of your search results and every radio personality, blog jockey, and self-anointed expert has filled the internet with their opinion on every area of money management, investments, insurance etc…

What seemed like a good idea 5 minutes ago now seems exasperating and the path of least resistance, leaving things as they are, looks like the way to go.  You thought finding someone you could trust would be located under the “fiduciaries I can trust and will make me a bunch of money” tab on Google but instead you end up with two websites that give you completely contradictory information.

But come on, if people can find someone to marry, their next pet, or spiritual enlightenment on the internet surely you can find someone to help you with the 1s and 0s.  So you click on a link, fill out some questions, request a meeting, or pick up the phone and start dialing.

The next thing you know your phone is ringing with three different people, all of whom seem perfectly palatable, and you start to get pensive.  It will actually be decision time soon, or worse, nothing changes.  Something that should answer questions and relieve stress starts to look like just another chore, and no one likes being sold something (even something that they want and could do them a lot of good).  But, if you do land on someone who can do the right thing for you, it could be one of the best decisions you ever make.

Here are some helpful tips on how to simplify the process, what to look for, and some other hopefully helpful musings on choosing a financial advisor.  This article is already longer than I intended, but if you’ve read this far you probably take your money seriously enough to follow my ramblings to their conclusion.  I just apologize in advance.

  1. Wall St figured out a while ago that people love two things: stock photos of happy families walking on a beach and the word   The word fiduciary has a legal meaning but Wall St has figured out a way to anoint all their advisors with that word and still separate you from your money.  The most important thing is a business model that guarantees no conflict of interest.
    1. First, without question, read this to understand probably all you need to know (yes this article could have been 2 sentences): RIA vs Broker and Hybrid investment advisors

Go ahead and ask your potential advisor if they are a fiduciary.  I know you want to and I can’t stop you.  But before your meeting go to the internet and check a couple things:

  1. Go to the Financial Industry Regulatory Authority website and check out both your potential advisor and their firm here : FINRA Broker Check. You will see one of three things.
    1. IA: Investment Adviser
    2.   B: Brokerage Firm
    3.   B: Brokerage Firm
      1. Investment Adviser

Investment adviser firms are fee only advisors.  They only do better when you do and you are assured that there is no conflicts of interest.  They have no incentive to sell you on a freshly commissioned investment product ever two years.

Brokerage firms can get paid a commission for buying and selling your invested assets.  Read the blog article above for an in depth look at that model.  Bottom line is they may be fantastic people but there is an inherent conflict of interest in this model.

Dually registered (IA / Brokerage firms or “B/Ds”) are Wall St’s newest brain child.  Able to hold themselves out as “fiduciaries” they can legally use this word and then talk their clients into the commissioned investment model.

  1. The next thing to do is have an open mind. Force yourself to phrase questions like “hey, I read this on the internet…does that sound right?” as opposed to cementing something that may be wrong like “my uncle told me never to do that.”  Not because you are necessarily wrong, but because you don’t want to close yourself off to a potentially very beneficial strategy because your favorite radio host/blogger/uncle who used to be in the business said it was a very bad, awful, no good idea.
  2. Don’t be afraid to ask direct questions and expect direct answers. For example: “what do you charge for a management fee” should be answered with some sort of number like “1%” and not with something like “we have multiple models based on how you chose to allocate your assets and also did you notice how nice our lobby was?”

You should look in the SEC’s advisor disclosure search here and click on the “Part 2 Brochure” of your prospective advisor and their firm.  Because those documents are long, confusing, and awful to read, I would also recommend getting a quick follow up email in plain language from your advisor specifying the details of your arrangement.

  1. I know I will be uninvited from all the cool investment conference for this but let me take the patina off of some of what Wall St spends billions on every year. With the low cost investments and tools available to the general public, ridiculous management fees, wrap fees, asset under advisement fees, 12-B1 fees…noticing a trend…are, in my opinion, rarely justified.  If you are paying a management fee and a mutual fund fee because Wall St dictates your advisor use a certain investment; or you are paying a management fee on a separate account…I would take a hard look at what you are actually paying for.
  2. Look for specialized training and outside the box advice. Taking a risk tolerance questionnaire and getting a 10 page excel spreadsheet telling you to save more, spend less, and take a vacation every 3.4 years in retirement is not, generally speaking, why you should pay an advisor.  How do we hedge against higher tax rates in the future?  What if the market doesn’t tank, go up, but instead goes sideways?  Are there alternative investments that create higher passive cash flow and are not correlated with the broader equities markets?
  3. No one says you only have to work with one advisor. If you especially like one advisor’s planning, budgeting, and cash flow analysis, another advisor’s asset allocation strategy, and a third advisor’s insurance and estate planning, feel free to use them all for a piece of the pie.
  4. Be respectful of the person you spoke with and follow up with them. Most advisors are good people trying to do a good thing.  They all have kids sports, family, and business to run like everyone else.  Be open and honest in your questions and return phone calls and emails, engage in the process, and pull the levers you sought out someone to help you pull.  Hope is not a plan and nothing changes without action.

Hopefully this proves useful and it was worth the read.  Searching for a local financial advisor can be daunting, exciting, rewarding, and ultimately improve both the financial and peace of mind bottom line that people are looking for.