Learn how to do your homework when choosing a financial advisor
Understand the differences between some of the professional designations and certifications held by financial advisors
When you consider the service providers you trust most and who might impact your life, your financial advisor might rank up there with your doctor or lawyer. After all, you’ll likely share details about your goals and dreams, as well as about your finances, with your financial professional.
Your financial advisor can be the go-to person who will help you pursue your financial goals. They can help put you on the right path and remind you to stay on it when you might be tempted to stray. And, of course, they can help you with the numbers.
But first, what exactly is a financial advisor? In a general sense, a financial advisor can be any professional with whom you may work—a financial consultant, client services representative, financial planner—or, in a more formalized sense, a Registered Investment Advisor (RIA—more on that below).
Are you looking for a top financial advisor? Be picky; research your financial advisor as carefully as you would when choosing a doctor or a lawyer. Here are four things to consider.
1. Doing the Legwork
When considering how to choose a financial advisor, one way to start is by asking your friends and family for tips. Once you get names, you might look them up on social media sites to learn the basics. Sites like the Financial Planning Association and the National Association of Personal Financial Advisors can offer in-depth information about planners, their education and certifications, and how they’re rated among peers.
Want background information on a firm or an individual, such as licenses held or disciplinary history? BrokerCheck, a site run by securities regulator FINRA, can help. TD Ameritrade can help you navigate the advisor search process as well, through our AdvisorDirect® referral program (more on that below).
2. Considering Costs and Compensation
Costs vary, as do compensation structures. Ask if there’s an initial planning fee, what the fees overall are, and whether you’ll be charged as a percentage of assets, by the hour, or for specific products they might be selling. Don’t be afraid to ask detailed questions, because otherwise you might miss some underlying costs. Some planners might offer their services “for free,” but that typically means they are compensated via sales commissions when you buy or sell securities.
Looking for one-on-one investment help? Get started with AdvisorDirect®
3. Asking the Hard Questions
Consider asking a potential advisor, “Why should I choose you?” This might seem impolite, but it’s a necessary detail in choosing a financial advisor. What makes your guy or gal a top financial advisor versus the one next door? Go ahead; grill your financial advisor.
Again, be aware that “financial advisor” is a general term, and can refer to a number of financial professionals. Here are three common designations:
- Certified Financial Planner (CFP). Certification requires passing a comprehensive board exam covering financial planning, insurance, taxes, retirement, and estate planning.Chartered Financial Consultant (ChFC). Requires a bit more coursework than the CFP, but certification doesn’t require a board exam.Registered Investment Advisor (RIA). The RIA designation is more about registration than certification. An RIA is registered with the Securities and Exchange Commission and/or a state securities regulator. Whereas many designations operate under a “suitability standard,” meaning recommendations must be based on a client’s objectives and risk tolerance, RIAs operate under a stricter “fiduciary” standard.
Your financial advisor may have one or more of these licenses and certifications. Each of them comes with a certain level of education and required ongoing learning. Typically, registered representatives are also considered stock brokers and thus have a license to sell securities.
4. Meeting in Person
After the initial vetting, the next step is a personal meeting. You don’t have to be best friends with your financial advisor, but you might want to have a good rapport with them. You want to know that the advisor understands, perhaps even empathizes, with your situation to better help you define and pursue your goals. Remember, this is a personal relationship. You may give your advisor more information about your life, your goals, and your ongoing situation than perhaps anyone else. Goal planning isn’t just financial; it’s personal as well.
Need a Hand Getting Started?
Let TD Ameritrade help, through our AdvisorDirect referral program. Just stop into a branch and speak with one of our financial consultants, who will assist you in finding an independent RIA in your area and arrange that first meeting. The RIA will give you a free consultation and if, after considering steps 1-4 above, you think it’s a good fit, you can engage his or her services. The advisor will work with you to design and develop a personalized plan to help you pursue your goals.
As a reminder, an RIA is held to the higher “fiduciary” standard, which means he or she must always act in the client’s best interest. RIAs are a frequent choice for clients with at least $1 million in investable assets, who may need help with wealth planning, investment advice, trust and estate planning, and tailored investment solutions.
A final word on financial advisors: Remember that the person or firm with whom you share your goals and dreams can be a key component of your long-term plans and maybe even your family legacy. Doing some solid research may be well advised.
Under no circumstances should participation by a certain RIA in AdvisorDirect be considered an endorsement or recommendation by TD Ameritrade for that particular RIA. Minimum asset level required. There is no charge or obligation for the initial consultation with the RIA. Once you select a RIA, you will pay advisory fees and standard brokerage fees. Brokerage transactions executed through TD Ameritrade are subject to standard transaction charges. You should review an RIA’s Form ADV, other applicable advisor disclosure document(s) and the AdvisorDirect Disclosure and Acknowledgement Document prior to engaging an RIA. The Form ADV contains important disclosure information relative to an RIA’s services and fees. RIAs charge an ongoing investment advisory fee for their services. RIAs will pay TD Ameritrade fees for their participation in the AdvisorDirect program. Those fees will usually constitute a percentage of the advisory fees you will pay your RIA. For additional details about the fees paid to TD Ameritrade and other conflicts of interest, please review the AdvisorDirect Disclosure and Acknowledgement Document and ask your RIA about its specific arrangement with TD Ameritrade. You are solely responsible for evaluating any advisor that you are considering.