What Should I Look for in a New Financial Advisor?

Dear Carrie,

My dad introduced me to the financial advisor he’s been using for years. I met with him a couple of times, but feel like we’re on different wavelengths. Do you think I’m right to look for someone else—and if so, what’s the best way to go about switching?

—A Reader

Dear Reader,

The answer to your first question is simple: If you’re not comfortable with an advisor, it’s absolutely worth looking into changing relationships. Of course, it can feel a little awkward—especially if the advisor has a tie to your family—but it's your money and your future that’s at stake.

The second part of your question is a bit more involved. Financial advisors come in lots of different shapes and sizes—from registered brokers to independent investment advisors to financial planners. Each may be credentialed but may well have different backgrounds and areas of expertise.

On a personal level, and this is equally important, it is essential to find an advisor with whom you can connect—someone who listens to you, who understands your questions, and who can provide understandable answers.

Your goal is to find that person who has the right combination of professional qualifications and personal qualities to support your needs. Your father’s advisor may be great for him, but you owe it to yourself to find an equally good match for yourself. Let’s take a look.

Start by asking yourself some important questions

Finding the best advisor starts with looking inward. You can begin this process by asking yourself some basic questions:

• What are my most important financial goals?

For one person this might be launching a business, or graduate school, or perhaps even an early retirement. Of course, your goals are likely to change with time, but thinking in concrete terms can help ground your initial process.

• What type of financial advice do I need?

Do I simply want one-time advice on a specific topic or ongoing help and guidance? You may have a good handle on your savings goals, for example, but need help in building and managing your portfolio. Or perhaps you also need help with estate, education or insurance planning. 

• What level of service and advice do I want from an advisor?

Some advisors meet clients in person and some virtually. Some advisors work in teams while others work solo. Some advisors just provide investment management services. Some provide more comprehensive financial planning, advice and counsel on your personal finances. Bottom line, you want to work with an advisor that works around your life—and not the other way around.

Next, start your search

Your next step will be to start gathering names. Ask trusted friends, colleagues, or family members for their recommendations. Or if you currently have a relationship with a particular financial services firm you could also start your search there.

Before you set up any appointments, it’s time to do some detective work. You can find information on financial advisors at places like FINRA Broker Check and the SEC. Your state insurance or securities regulator may also have information on an advisor you're considering. While choosing a licensed investment professional isn’t a guarantee of skill or honesty, unlicensed, unregistered persons commit much of the investment fraud in the United States according to the SEC. 

Even if a close friend, colleague, or family member recommends someone to you, you should still check the person’s background. That's how Bernie Madoff did so well. All his investors knew one another and assumed that if their friends used them then he must be good. Wrong! Don’t take their word for it. Do the research yourself.

Set up appointments and ask questions

Every advisor is different. When you first meet, your goal will be to understand the services they provide, how and how often they communicate with you, the fees they charge, and varying philosophies on how they help clients. Here are a few of my favorite questions to ask when you first meet with a potential advisor:

• What services do you provide? Financial planning? Investment management? Budgeting? Insurance planning? All of the above?
• What professional licenses do you hold? Are you registered with FINRA, the SEC or a state securities regulator? Can you tell me more about your background?
• Do you have expertise serving particular populations? Do you or your firm have a specific investment philosophy? What type of investment products and services do you offer? Are there products or services you don’t offer?
• How do you get paid? A percentage of the amount of my assets you manage? Do you have minimum account balances? Do you receive commissions on products I buy or sell? A flat fee? What other fees do you charge?
• How often will you contact me? And when are you available if I have questions?

As you talk through these initial questions, you should also start to get a good feel for the advisor’s personality and communication style. Do a gut check. Are you comfortable sharing personal information with this individual? Are the candidate’s answers clear and direct? If you have any hesitation about their honesty or willingness to take time with you, those are important red flags.

Understand fees and expenses

Compensation matters; in fact, understanding how an advisor gets paid can help you identify and avoid potential sources of conflicts of interest. Keep in mind that regardless of how an advisor is paid, it's essential that they always put your best interests first.

Fees are also important because they can take a big bite out of your investment returns. Therefore, it’s important for you to understand what and how you’re being charged, and that you feel comfortable that all fees are reasonable and justified.

Switching advisors isn’t easy, so I commend you for taking the time to find someone who better fits your personality and understands your needs. I can’t emphasize enough how important it is to do your homework. As you interview candidates, be direct and listen to your gut as they respond to your questions. Remember, it’s your money and your advisor will work for you. Good luck.

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.