Over the past couple of years, I’ve encountered dozens of families who are either considering changing advisors or are looking for their first. Based on my experience, here is my adaptation of a list created by SmartAsset to help screen prospective advisors. You can find their version here.
Ask if they are a fiduciary: This is a yes or no question. Anything other than “yes” or any attempts at a deeper explanation = not a fiduciary. Just as there is no such thing as being “kinda pregnant,” there is no such thing as being partly a fiduciary. If they’re a fiduciary one moment but not the next, I’d argue they were never actually a fiduciary.
Don’t hire the first advisor you meet: Financial advisors who make it through their first few years in business are generally friendly and personable. Even if you like the first one you meet, that doesn’t mean they’re the best fit for your needs. It’s your duty to your future self to find the greatest value advisor around. Not the cheapest or friendliest, the greatest value.
Choose the advisor with the correct specialty: This one can take more than one question to find the answer. Two I’d suggest would be, “Where is most of your revenue generated and what services do you provide most of your clients?” If the answer is insurance but you’re looking for financial planning or comprehensive wealth management, you’re probably in the wrong office.
Pick an advisor with a compatible strategy: Ezra Solomon once said, “The only function of economic forecasting is to make astrology look respectable.” If you agree, you shouldn’t hire an advisor who uses tactical assets allocation. If you’re tax and fee conscious, you shouldn’t use an advisor who relies on actively managed funds. There is no such thing as secret sauce, so don’t be afraid to ask.
Ask about credentials: Every advisor is required to pass certification exams, so those don’t count (Series 6, 7, 65, 66, et al… everyone has them, nobody cares). The ones that should carry weight are CFP, CFA, CPA/PFS, ChFC, and maybe a few others. Keep in mind there are quite a few designations of dubious quality. For example, the AAMS designation is basically 1/7th of the CFP designation and should probably be weighted thusly.
Ask how they’re paid: I think you should get a simple answer here. If you feel like you need to draw a flow chart for all their sources of income, they probably failed question #1, so I’d recommend moving on.
Hire a vetted advisor: There are several ways to vet an advisor but the best one is probably to ask your friends and family who they use. If none of them have an advisor, ask a mentor or other professionals in your life. Chances are that your tax preparer or attorney has dozens of interactions with several advisors or advisors’ clients every year. Assuming they don’t have a financial interest which one you choose (yes, you should ask) you’ll probably get a solid recommendation. Barring those options, NAPFA has a solid search tool and seems to be better at screening members than other enterprises.
If you’re curious how we answer these questions, find out for yourself by scheduling a meeting with us here.