A challenging pursuit…selecting the right Financial Advisor
A challenging pursuit…selecting the right Financial Advisor
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    By: Michael Weber

For many, finding a financial advisor that they can trust to put their best interests first is a daunting task.  Many questions begin to circle in most people’s minds.

  • How do I know my advisor is qualified to do a better job than I can do on my own?
  • What do all the letters behind an advisor’s name mean and which designations actually indicate that the advisor is vetted and qualified?
  • How does my advisor get paid and are there any conflicts of interest?
  • Is my advisor acting as a fiduciary and putting my best interests first?

If you are currently working with a financial advisor or have been considering hiring one, these are likely just a few of the questions you have.  With so many people claiming to be financial planners, financial advisors, financial representatives, wealth managers, and so on, how do you know you’ve found someone who can really help you?  We hope this article will help guide you in the right direction and lay some guidelines for working with the right advisor.

To begin, you must be willing to educate yourself on some key aspects of working with a financial advisor:

  • Credentials
  • Compensation models and conflicts of interest
  • Disciplinary issues
  • Fiduciary vs. suitability standards


There are a vast number of professional designations in the financial planning industry.  Some of these designations are meaningful and require significant education, experience and ethical standards.  While others may require a weekend and a simple non-proctored online test.  We suggest looking for a financial advisor that has earned the Certified Financial Planner® (CFP®) designation as a starting point.

The CFP® designation represents that the advisor has met the CFP Board’s rigorous requirements of education, examination, experience and ethics.  The first step to CFP® certification is to complete education requirements in the major areas of financial planning and then pass a comprehensive exam.  A CFP® must also hold a bachelor’s degree or higher from an accredited university.  The examination requirement ensures the individual has met a level of competency appropriate for professional practice.  Next, the CFP Board requires 6,000 hours of professional experience prior to using the CFP® marks.  Finally, CFP® professionals agree to adhere to the high standards of ethics and practice standards set forth by the CFP Board.  For more information on the CFP® designation or to find a CFP® professional near you visit www.cfp.net.

Compensation models and conflicts of interest

It’s important to understand the various ways that financial professionals are compensated to avoid conflicts of interest.  The compensation your advisor receives may affect the advice you receive.  There are three common ways financial professionals are compensated:

Fee-Only – A Fee-Only financial advisor charges the client directly for advice and/or ongoing management.  No other financial reward is provided by any institution, meaning the advisor does not receive commissions on any products they may advice.  This model minimizes conflicts of interest and best aligns the interest of the client with the advisor’s advice.

Commission and Fee – Often called “Fee-based” advisors to bring resemblance to Fee-Only advisors.  Commission and Fee advisors charge clients a fee for advice, however can also receive payments for products they sell or recommend.  These commissions can lead to conflicts of interest and may lessen the advisor’s ability to put the client’s best interest first.

Commissions – An advisor who is compensated through commissions is primarily a salesperson.  Commission-based advisors are usually required to put the best interests of the employer ahead of the best interests of the client.  Serious conflicts of interest exist in this form of compensation and you’ll always be left wondering: Is this in my best interest or the advisors?

Disciplinary Issues

Regardless of compensation, you don’t want to work with a dishonest advisor.  There are ways to track down information that will significantly increase your confidence in the advisor you select.

A Registered Investment Advisor or RIA is required to have a Form ADV.  The Form ADV outlines the advisor’s business, including compensation, experience, and any disciplinary history.  The SEC and oversight organizations keep records about disciplinary actions taken against advisors.

Before hiring an advisor, check the SEC Investment Adviser Public Disclosure (IARD) website and the FINRA BrokerCheck website if your advisor is not an RIA.

Fiduciary vs. Suitability Standards

Federal and state law requires that Registered Investment Advisors (RIA) be held to a Fiduciary Standard.  This standard requires an advisor to act solely in the best interest of the client at all times.  Unfortunately, only a small number of advisors are RIAs.  Most financial advisors are “registered representatives” of a broker-dealer.  These brokers are not held to a Fiduciary Standard, but are held to the lower Suitability Standard and are required by law to act in the best interest of their employer.

Because broker-dealers are not necessarily acting in your best interest, the SEC requires the following disclosure:

“Your account is a brokerage account and not an advisory account.  Our interests may not always be the same as yours.  Please ask us questions to make sure you understand your rights and our obligations to you, including the extend of our obligations to disclose conflicts of interest and to act in your best interest.  We are paid both by you and, sometimes, by people who compensate us based on what you buy.  Therefore, our profits, and our salespersons’ compensation, may vary by product and over time.”

With a disclosure such as this, you’ll need to ask yourself if that is the type of relationship you are looking for.  If you still decide to work with a broker-dealer, make sure to ask additional questions about every recommendation proposed including compensation for the advisor and where his or her loyalties lie before signing anything.  Often, after you sign, it may be too late.  You may be locked into a high fee annuity or other financial product.

After you’ve educated yourself on these topics, you’re ready to begin your search for a financial advisor or evaluate your current advisor.  We suggest narrowing the field by searching for advisors near you on the CFP Board of Standards Search at www.cfp.net or the NAPFA’s Find An Advisor Search at www.napfa.org.  Once you’ve narrowed the field to a few advisors, ask for an introductory meeting.

At the introductory meeting, be prepared to ask your prospective advisor questions that will provide insight into their compensation structure, credentials, disciplinary history and fiduciary standard.  Here’s a few questions to get you started:

  • Is your firm a Registered Investment Advisor?
  • What is your educational background? Are you a CFP® professional?
  • Were you ever cited by a professional or regulatory body for disciplinary reasons? (Remember to check their history prior to an appointment.)
  • How are you compensated? Will you ever earn a commission on any products that you recommend?
  • Will you sign a Fiduciary Oath?

Finally, don’t settle for a substandard advisor.  Find an advisor that answers your questions the right way and makes you feel comfortable.

To schedule a complementary initial consultation with a Bluesphere advisor, call 610-277-1515.