Here's how to find and vet a fiduciary financial advisor.
Level Setting
There are no perfect financial advisors. There’s not a secret question to determine which advisor is for you. That said, you should know what to ask a financial advisor.
Finding the best advisor for you is a process of elimination, followed by choosing the advisor whose approach best matches yours. Eliminate potential advisors who don’t fit your criteria, then pick the top 2-3 remaining to interview. After the interviews, go with the one you think fits you best.
Honestly, a lot of it comes down to the personal connection. Everyone has a different style and that’s totally okay.
Some potential clients probably don’t like that I wear jeans and a polo. They expect a mahogany boardroom and power ties. That’s not me but it’s totally okay. You deserve an advisor that fits you.
Through the rest of this article, I’m going to lay out what should be non-negotiable and what to consider when looking for an advisor.
What to Ask a Financial Advisor?
What certifications / designations do they have?
If you want a real financial advisor, you should only work with those who hold the Certified Financial Planner designation. The CFP designation is the simplest way to separate the wheat from the chaff. It shows you who cares enough about the profession to go beyond the bare minimum.
The Certified Financial Planner designation shows you that an advisor has both education and experience. You don’t want someone practicing with your money, right?
On the education side, you must have an undergraduate degree, pass the CFP curriculum covering investments, retirement planning, estate planning, insurance, and taxes, and then pass a comprehensive exam. More than 1 in 3 fail the exam, so it’s not exactly open book.
On the experience side, the CFP designation requires a minimum of 6,000 hours of work-experience before the designation will be awarded. Again, this means that any CFP has a certain amount of experience before they’re ever allowed to use the marks.
An advisor without it isn’t necessarily bad, but it does make me ask why they never bothered.
Alternatively, a Chartered Financial Analyst or a Certified Public Account is also a good option.
Beware of less rigorous designations. There are plenty of letters that only mean I was willing to pay $500 and take an open book test.
Ask This Question
Are you always a Fiduciary?
In simple terms, a fiduciary has to work in your best interest, all the time.
Should be par for the course, right? Sadly, not all advisors are held to this standard. Some advisors are held to the “suitability” standard, which means that they’re free to recommend anything to you, so long as it’s suitable. It doesn’t actually have to be the best option for you.
Some advisors will weasel around their answer, others will unequivocally answer yes. Personally, I always act in a fiduciary capacity and I can’t imagine acting otherwise.
Three More Questions to Ask
What is your fee? Any advisor should have zero problem explaining how they’re compensated. If they say they work for free or they’re compensated by an insurance company…run. That’s a red flag. A good advisor should have a clear and transparent method of charging.
Describe your typical client. You want to make sure the advisor has experience in solving your problem. Managing student loans is very different from helping someone transition into retirement. Neither is necessarily harder, the knowledge is just different. You wouldn't go to a podiatrist when you have a toothache, right?
What is your investment style? If an advisor talks about beating the market or picking individual stocks, I would run. Evidence shows that less than 1 in 10 actively managed mutual funds with teams of analysts and portfolio managers beat their benchmark over a 10 year period. It’s highly unlikely that an advisor working out of a strip mall is going to do any better. Check out my post here on why most portfolios are terrible.
Where to Find Your Next Advisor
NAPFA (National Association of Personal Financial Advisors) is the leading association of Fee-Only, fiduciary financial advisors. You can find their Find an Advisor Tool here.
XY Planning Network also has a Find an Advisor service. Like NAPFA, all advisors listed are Fee-Only and Fiduciaries. You can search their advisors based on location or specialty.
Plentiful Wealth is a fee-only firm specializing in tax-efficient retirement plans for clients who want to retire within five years. (What, you thought I wouldn’t mention my own firm?)
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