What is the best way to choose a financial adviser?
I am in my mid-20s and have a steady income. Currently, I have a
large savings account that I don't know what to do with.
-- Clay Cache
It's great that you're at this point in your 20s. Sound professional
advice now will make achieving your life goals easier. Start out by
deciding how much help you need. Do you just want investment advice
or is that just one part in building a comprehensive financial plan?
The key in choosing a financial adviser is in finding
one who will work to identify your goals and needs and recommend
a range of financial products to meet those goals and needs. A stock
broker, for example, may not focus enough on your insurance needs,
while an insurance agent may focus too much on that need.
It's important to understand how your adviser
is paid. Whether it is commissions, fees or a percentage of assets
under management, the adviser is paid for his advice. Understanding
how he is paid and how much he is paid is a part of establishing
Questions to ask
The following 10 questions can help you determine whether an adviser is right for you.
1. What experience do you have?
2. What are your qualifications?
3. What services do you offer?
4. What is your approach to financial planning?
5. Will you be the only person working with me?
6. How will I pay for your services?
7. How much do you typically charge?
8. Could anyone besides me benefit from your recommendations?
9. Have you ever been publicly disciplined for any unlawful or unethical
actions in your professional career?
10. Can I have it in writing?
Financial Planner Board of Standards Inc. provides an even more complete list of
questions you can ask when interviewing financial advisers.
There's an alphabet soup of financial adviser designations
and trying to decide what designation your adviser should have is
easier when you know the differences. The following list, while
not exhaustive, gives you an idea of what's out there:
- Certified Financial Planner
(CFP): The CFP, CERTIFIED FINANCIAL PLANNER, is a financial
planning credential awarded by Certified Financial Planner Board
of Standards Inc. (CFP Board) to individuals who meet the CFP
Board's education, examination, experience and ethics requirements.
- Chartered Financial Consultant
(ChFC): A designation awarded by the American College in
Bryn Mawr, Pa. The designation requires eight courses in personal
finance related topics. Students also must meet specified experience
requirements, maintain ethical standards and agree to comply with
both The American College's Code of Ethics and applicable continuing
- Chartered Financial Analyst
(CFA): A designation awarded by the CFA Institute to experienced
financial analysts who successfully pass three annual examinations
covering economics, financial accounting, portfolio management,
securities analysis and ethics, have approved work experience
and meet other requirements. CFA charter holders are annually
required to affirm their commitment to high ethical standards.
- Certified Public Accountant-Personal
Financial Specialist (CPA-PFS): The PFS designation is
awarded by the American Institute of Certified Public Accountants
(AICPA) to CPAs that meet mandatory requirements for personal
financial planning experience, lifelong learning and examination
and adhere to the AICPA's strict Code of Professional Conduct
and professional standards.
When interviewing advisers, find out what professional
designation(s) they hold and learn what it took to earn that designation.
If they're too busy to schedule an interview, they're too busy to
handle your money.
My leaning in selecting a financial adviser is to
choose one that will work with you on a fee-only basis as they develop
a plan. If, in implementing the plan, you choose a commission driven
or asset-under-management approach to compensate the adviser, then
those initial fees may be reduced or credited to your account. The
National Association of Personal Financial Advisors provides a directory
of fee-only planners on its Web
site. The CFP Board allows you to search for CFP certificants
on its Web
site while The American College's Web
site lets you search its alumni list for financial or insurance
Editor's Note: Dr. Don
Taylor is an associate professor of finance at The American College and a Chartered
-- Updated: Sept. 14, 2006