Financial Advisors: How to Pick the Perfect One for You

HCR Wealth Advisors
4 min readApr 1, 2020
Photo by Helloquence on Unsplash

As exciting as it sounds to say, “I just got off the phone with my financial advisor,” it doesn’t always make sense to have one. But then, sometimes it makes all the sense in the world.

Let’s see which is which.

When Don’t I Need a Financial Advisor?

It doesn’t make sense if you’re in the process of getting your financial house in order and paying off debt. For now, you’d probably be better off working with a good credit counselor who can get you ready to save and invest.

Say your budget is tight but you want some orientation, consider paying a reasonable one-time fee to an advisor to help set up your financial priorities.

Last in the I-don’t-need-one category is if you’re just starting to learn about finance and your financial situation is not complicated. Instead, tap into the endless resources that exist online, including all the apps. Your focus now will be on paying down any debt, building your safety-net emergency fund, and making the most of your employer’s matching plan for your 401(k).

But all three of these situations are temporary. Each one has the potential of evolving into a position where you have the assets that justify — and deserve — assistance.

When Do I Need a Financial Advisor?

When you are making a significant life change — like marrying, divorcing, or having children — financial advice can make the transition easier. It will be reassuring to know you are facing any related financial challenges with knowledge and confidence.

If your income or assets jump suddenly — from a big promotion or inheritance — a financial advisor can point out available tax breaks and set up priorities that make the most of your resources.

If you’re a high-net-worth individual and don’t yet have a financial advisor, bravo! Congratulations on getting there without help. But, going forward, look for a firm that specializes in wealth management so that all estate, investment, and tax planning is set up for you.

More and more people are going freelance or starting businesses. Your financial opportunities and obstacles change and suddenly you’re looking at new retirement options, tax considerations, business-building strategies, and maybe even employee issues. A financial advisor familiar with self-employment and start-ups would be best.

And lastly, consider a financial advisor if you are planning for or approaching retirement. Timing is critical and if you wait too long, you may limit your flexibility to make essential changes for long-term financial wellbeing. First, you need to know if you’re ready to retire. Then, how to maximize your Social Security benefits using the strategies many professionals know. And how to withdraw money from your accounts and minimize the tax bite. (That can determine if you run out of money or not.)

How to Find the Best Financial Advisor

Finding a financial advisor is easy. But, finding the one who matches your personality, understands your goals and dreams, and has the knowledge to guide you in all aspects of your finances? That takes a little more effort. That’s because, unless you’re looking for a one-time advisory session, you’re establishing a long-term relationship.

First, let’s sort out the different types of advisors and what services they offer.

Understanding the Different Advisor Types

Let’s first clear up the terminology. The overall umbrella term for such services is ‘wealth management.’ That’s the professional work done to invest and grow assets while minimizing risk and preserving wealth. Some are done at the institutional level (banks and funds), and the rest is done for smaller organizations and individuals. (That’s you.)

‘Financial advisor’ is the most general term on the non-institutional side. It can include stockbrokers, money managers, estate planners, insurance agents, and others. (If working with the public, they need a Series 65 license.).

Under the ‘financial advisor’ rubric, you find financial planners, investment advisors, and retirement income planners. The first group focuses on all aspects of your financial life to help you meet your long-term goals. The others focus primarily on investments or on your retirement.

According to the Financial Industry Regulatory Authority (FINRA), almost anyone can call herself or himself a financial planner and can come from virtually any background.

That makes it entirely your responsibility to check the credentials of anyone you plan to listen to and pay for financial advice.

Checking Out a Financial Advisor’s Credentials

Organizations create credentials that can virtually be purchased, and that sounds very official. But, to ensure you are hiring a qualified professional., look for someone with a Certified Financial Planner (CFP) or Personal Financial Specialist (PFS) certification. An investment advisor should be certified with a Certified Financial Analyst (CFA).

These are the best-known designations and require candidates to meet education, experience, ethics, and examination requirements. Subsequent certifications exist for more sophisticated advisory needs.

Look for a financial advisor that is registered with the Securities and Exchange Commission (SEC) or a state securities regulator so that the advisor is subject to stricter regulations and oversight.

You can verify an advisor’s credentials, as well as complaint history, directly with the SEC, FINRA, or the relevant licensing board.

Also, FINRA has created BrokerCheck, “a free tool to research the background and experience of financial brokers, advisers, and firms.” Through the North American Securities Administrators Association (NASAA), you can reach your state’s securities regulator who has access to broader information on an advisor.

The issue of fraud shouldn’t be overlooked either. Certification is just one step. If your advisor will have control or custody of your assets, be sure they are using a third-party custodian to hold them. Your accounts should be opened with a well-known firm like Fidelity or a Charles Schwab, who would report directly to you instead of to the advisor.

This article is provided for informational purposes only and should not be interpreted as investment advice.

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