Not all brokers have the same level of knowledge about investments. A CFA (Chartered Financial Analyst) is someone who has earned the highest achievement in investment analysis.
Most fall in between these extremes, but are but not necessarily trained in other important aspects of financial planning.
It can be difficult to determine who is on your side, and who is just trying to sell you a financial service or product. Some insurance agents call themselves planners, and you'll even find "financial planning consultants" who appear to work for a bank, but are actually employees of a brokerage firm within the bank!
What Advice do You Need?
As long as you understand the difference between these professionals, you can pick and choose the correct adviser—or group of advisers—to suit your needs.
If you already have a trusted insurance agent, then you may only need a stockbroker to guide you into investments. The brokerage firm may offer a "managed account" for a fee of perhaps 1%, on top of the fund fees and commissions.
If you don't want to pay fees or commissions, you may dispense with the stockbroker, and take advantage of the free portfolio advisory services offered by mutual fund companies such as Fidelity and Vanguard. Even funds with no "load" or upfront commission will charge annual management fees, so you should ask about and compare those costs.
If you're smart about investments, you may still need a qualified tax adviser—probably a CPA (certified public accountant) —to with annual tax filings and long-range plans. Your CPA will work with your estate planning attorney to make sure your tax situation is covered not only in life, but after your death.
Basically, if you want someone else to do it all for you, choose a Certified Financial Planner.
An important thing: Ask for, and check, references of people who are their clients in similar situations.
Starting Your Search
One of the easiest ways to find a good financial planner is to ask successful friends for their recommendations -- just as you would do when seeking a doctor or attorney. Or, you can search the sites recommended above for credentialed planners in your area.
Don't choose blindly. Set up appointments with at least three planners and attend all the meetings before making a choice. The initial meeting should be at no charge. Make sure to schedule a time when you can arrive promptly, and when you are not pressured to depart early. Come prepared with your own financial information, current investment statements for retirement plans and other assets.
Don't be intimidated. Ask appropriate questions (see list below) and listen carefully for the answers. And then listen to make sure the advisor asks appropriate questions of you -- and isn't just hurrying to get a list of your assets (see list below).
After meeting with several advisers, you'll have the basic information to make a decision. Trust your instincts, but verify the information you have been given by the planner. Talk to those references. And check the appropriate registry to make sure the person has no disciplinary problems.
Ask to see the adviser's Form ADV, (or form CRD for stockbrokers) which must be filed with the SEC and/or your state securities commissioner.
Use the BrokerCheck tool from FINRA, the largest nongovernmental regulator for securities firms doing business in the U.S., to research individuals and brokerage firms as well as investment advisers. Or call their toll-free hotline at (800) 289-9999.
If you're going to trust your entire financial plan, or even just the investment or insurance portion of your financial life to an expert, you'll almost need to become an expert yourself to make the proper choice of adviser. This is one decision where it pays to do your homework.
6 Questions To Ask a Financial Adviser -- Before You Sign Up
• How long have you been in the business, and how/where are you registered?
• How much do you charge -- and do you make money from commissions, "loads", annual management fees, or any other type of referral fee on the products you sell? Or do you only charge a set fee for your service?
• What do I get from you, after the original financial plan? How many meetings a year will we have? Will I talk to you, the planner, or to your associates or secretaries when I call? When is it time to review/change my plan?
• Do you take custody of (handle) my money or securities? Or is it all done through a bank or brokerage firm?
• Will you always consult me before making any changes to my investments?
• Please give me references of clients who have been with you at least three years, and are in my same general financial situation.
6 Questions the Financial Adviser Should Ask YOU in the First Meeting
• What are your goals? (This is a key ingredient in any planning decision, so be sure the planner asks -- and that you're prepared to answer! You should have both long- and short-term goals.)
• What is your risk tolerance? (Sure, everyone wants to make a lot of money in the stock market or other investments. But will you have a heart attack if you lose 20% or 30% of your money? Be honest! And then listen to the adviser's response, because all investments beyond money in the bank involve some degree of risk, without which there is no reward.)
• What/where are all your assets? (The adviser should want to know if you have a large mortgage, are expecting an inheritance, if your spouse has a retirement plan. If you don't trust him or her enough to give the full picture, then you have the wrong advisor!)
• Have you covered all the bases in financial planning? (Even if you're just talking to a stockbroker, it is necessary for them to question issues such as whether you have money saved for your child's college, enough life insurance, a will or estate plan. That will help determine the suitability of the investments they recommend.)
• How is your spouse/family involved in your financial plan? (While you may be the planning client, your family will be the beneficiary. Your planner should be aware of any special circumstances, such as a disabled child, or a spouse who unwisely refuses to participate.)
• How Involved Do You Want to Be? (Make sure you and the planner are on the same track when it comes to your knowledge and involvement. Some clients want to understand every detail; others merely read monthly investment statements. But, as noted above, do not give your planner "power of attorney" to act without your knowledge.)