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Choose the Right Financial Advisor

Financial advisor helps woman set financial goals.There are many reasons why you might want to hire a financial advisor. Maybe you need to help your elderly parents do their estate planning, or maybe you’re preparing to buy your first house or you are ready to get serious about investing. Before you sign up for the first financial advising service you find on the internet, learn about types of financial advisors to make sure you get the best fit.

Financial Advisor Certifications

There are various types of certifications and professional associations for financial advisors who cover different specialties. Here’s a short list:

Certified Financial Planner (CFP®)

CFPs must pass a 10-hour, 285-question exam and complete at least three years of job experience in financial planning or two years as an apprentice with a CFP. Because of this extensive training, CFPs can help with a broad range of topics — from basic budgeting to estate planning, investing and insurance.

Accredited Financial Counselor (AFC®)

Administered by the Association for Financial Counseling and Planning (AFCPE), the AFC designation requires completing coursework, passing an exam, completing 1,000 hours of financial counseling experience and submitting three letters of recommendation. AFC professionals advise on money management, setting financial goals and supporting clients as they work through challenges and opportunities.

Certified Public Accountant (CPA®)

Specializing in accounting, bookkeeping, taxes and audits, CPAs are the way to go if you are looking for tax planning more than overall financial planning. They can advise on the tax implications of your investments, but would not be able to advise you on what to invest in. CPAs must take an exam similar to a CFP, but with a different focus.

Enrolled Agent (EA)

A more specialized version of what a CPA does, but with less emphasis on the day to day — for example, they are not trained in bookkeeping and accounting. EAs can help with tax preparation, but if you have a very complicated return or a business tax return, you will get more holistic help from a CPA.

Chartered Financial Analyst (CFA)

This is the most prestigious certification for investment advisors. They must have at least four years of professional experience, complete three years of coursework and pass a difficult exam. You probably don’t need to hire a CFA unless you’re doing extremely complicated investing. For most people, a CFP is a better fit.

Certified Employee Benefit Specialist (CEBS)

This is the highest designation for experts in employee benefit plans including pensions, benefits regulations and employer health and retirement plans. But the CFP certification includes much of this expertise as well. If you are looking for well-rounded advice, the CFP is broader in scope. Many questions about your benefits can be answered by your company human resources department, although HR cannot advise you on what to choose, just the details of the options.

Certified Fund Specialist (CFS) /Chartered Mutual Fund Counselor (CMFC)

These are mutual fund experts. The CFS requires a 60-hour self-study course with a final exam, while the CMFC requires a year-long course and exam. Either one can advise on mutual fund choices, but so can a CFP.

How Advisors Get Paid

The most important thing to know when you’re ready to hire an advisor is how they get paid. As a good rule of thumb, you should plan to interview at least three potential advisors before you hire anyone. Make a list of questions — and don’t be shy about asking them. You are the customer, so it is your right and responsibility to understand the details of the advisor’s services before you sign any deal or hand over any money.

Never give anyone your personal information such as your Social Security number or bank accounts until you are certain you want to hire them. Here are some common ways advisors get paid:

Commission Based:

Just like it sounds, they make money off of a commission for selling you something such as a mutual fund or an insurance policy.

Fee Based:

Advisors who charge a fee for their services and earn commissions for selling products.

Fee Only:

The only product they are selling is their expertise. They earn no commission on anything you buy, so they have no incentive to promote certain products over others. There are generally two types of fee-only advisors:

  • Based on Assets: These advisors charge a percentage of a client’s assets, which means they often only work with clients who have high net worth.
  • Hourly Fees, Flat Rates or Annual Retainer: These advisors might charge $1,000 annually — which breaks down to a little over $80 per month — or up to $3,000 annually, which would be about $250 per month. Just keep in mind that this doesn’t include the actual cost of products such as investment accounts and insurance policies that you might open based on the advisor’s guidance.

Hire the Right Financial Advisor

It’s always a good idea to ask for credentials, certifications and professional associations when interviewing any advisor, but the real decision will come down to what best meets your specific needs. Make sure to check for any customer complaints and read reviews of financial firms you are considering. Once you’ve narrowed your choices and done some interviews, don’t be afraid to ask for references or testimonials from other clients. Remember, an advisor is part of your personal financial team and it’s up to you to hire the right person for the job.

[Any reference to a specific company, commercial product, process or service does not constitute or imply an endorsement or recommendation by the National Endowment for Financial Education.]

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