The Planner's Perspective: Four Top Considerations When Selecting An Advisor

Paul Morrone |

By Paul Morrone CFP®, CPA/PFS, MSA

With no clear regulation on who can call themselves a financial planner, wealth manager, financial advisor, or any other similar title, it’s hard to ascertain what to expect when first meeting with a financial professional. I like to break advisors into two classes, those that provide asset management services and those that embrace holistic financial planning. I have a colleague that is quick to add a third category he likes to call ‘lip service’ advisors (those that say they do planning, but don’t) to the mix, but I digress. While there is no right or wrong way for advisors to serve their clients, you should understand what you’re getting into and what you’re going to get out of the relationship you hope to form with your next financial professional. Here are four of the most important things to consider as you prepare for your first meeting, in no particular order:

  • Credentials/qualifications – These are usually quite visible as all professionals are proud to display their marks. To be clear, there are many professionals without a designation that provide quality service, and working with someone who has earned a designation or advanced degree does not guarantee a better overall experience.  Those that have earned the CERTIFIED FINANCIAL PLANNERTM (CFP®) designation are required to undergo extensive training and educational certification specifically in the field of comprehensive financial planning, as well as meet qualified experience requirements before they can use the marks. Most professionals that carry a designation (CFP®, CPA, PFS, JD, CFA®, CLU®, CHFC®, CRPC®, among others) may also be held to a higher standard of care and more robust continuing education requirements than those that are simply licensed to transact business in securities and investments.
  • Compensation structure – There are generally three types:
    • commission,
    • commission and fee, and;
    • fee only

Again, there is no uniform approach, but any advisor should explicitly disclose the method(s) in which they get compensated. They should also be able to clearly articulate their level of compensation (i.e. a financial plan will cost $X in the form of a flat fee and you will be charged X% of the assets under management for ongoing asset management and advice) in a language you understand. In a world in which you pay for what you get, it is common for advisors that provide comprehensive services to charge more than those that simply manage assets as the level of service and complexity of the relationship requires a higher level of engagement by the advisory team on an annual basis.

  • Process – Most planning firms have a process to manage your financial future. Some offer more robust capabilities than others and this process generally begins with both the advisor and client establishing expectations regarding deliverables, fees and ongoing service commitments. For firms that engage in financial planning, there is commonly a fee for service to document their recommendations over all areas of your financial life. This should stem well beyond asset allocation, investments and retirement analysis to include such topics as risk management, insurance, estate planning, college planning, employee benefits, cash flow, business succession and income tax planning, to name a few.
  • Fiduciary – Is your advisor one? If so, this means that he or she is required (by law) to put your interest as the client ahead of theirs as the advisor. Not all financial advisors are required to act with this highest standard of care, and it is important to understand the type of recommendations you will be receiving. Advisors who carry the CFP® designation may also be required by the CFP® Board to act in a fiduciary capacity, or risk losing their marks if they are found to have violated the Code of Ethics or Standards of Care by not putting the client’s interest first.

Above all, there needs to be a level of inherent trust with any advisor you choose to work with. Aside from trusting them to prudently manage your life savings, you will also be sharing intimate details about your life with them, both personal and financial. This may include discussing an estranged child, excessive credit card debt, medical issues, an ugly divorce, addiction or gambling issues and even simple family drama, all of which have a material impact on your overall financial plan.