Americans aren’t making the grade when it comes to managing their finances—or at least they don’t think they are. On average, U.S. households give themselves a C+ on their ability to save for long-term goals, such as college and retirement, and a B for shorter-term responsibilities, such as paying bills and budgeting, according to a survey from financial technology company Fiserv. And nearly half of U.S. households say that they have no one to rely on for financial advice.
If you decide to seek help, knowing where to begin to find the right adviser can be intimidating. Financial advisers come in a confusing array of professional designations, with different fee structures and areas of expertise. Plus, hiring a pro seems out of reach to many because they think they don’t have enough money to manage or won’t be able to afford the fees.
Our guide will walk you through the steps to find the right financial adviser for you, no matter how much you earn or how much you have in savings and investments. You can develop a long-term relationship with an adviser or get an affordable, one-time checkup to see if you’re on track with your financial goals.
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Do I need a financial adviser?
At certain critical junctures, hiring someone who will make sure you’re heading in the right direction is well worth the cost.
Deploying a retirement strategy is one of the top reasons to see a financial adviser. Ideally, you’ll get help while you still have plenty of time to save and invest your money. James Kinney, a certified financial planner (CFP) and owner of Financial Pathways, in Bridgewater, N.J., says that many clients first visit when they’re within a few years (or months) of their anticipated retirement date. “The question most often on their minds is, ‘Can I afford to retire?’ At that point in their lives, what if the answer is no?” says Kinney. Although many of the clients of Rick Rodgers, a CFP in Lancaster, Pa., come to him a year or two before retirement, he would prefer to start working with them 10 years before their planned retirement date.
Retirees and people close to retirement can get help designing a withdrawal strategy that minimizes taxable income, says Ann Gugle, a CFP, certified public accountant (CPA) and principal at Alpha Financial Advisors, in Charlotte, N.C. Gugle often works with clients in their sixties who have a few years left before they must start taking required minimum distributions from their tax-deferred retirement accounts at age 70½. That’s valuable time they can use to separate money into different buckets—perhaps by cutting back on tax-deferred savings or converting some holdings in a traditional IRA to a Roth IRA.
Getting married or divorced, starting a family, dealing with the death or disability of a family member, or starting a new job are all good times to seek out an adviser. Any change in your family situation may necessitate an update in your estate plan and documents. When you have kids, an adviser can help you juggle college and retirement savings or manage your budget if one parent decides to stop working.
When taxes loom large, you can get help from tax advisers and preparers. You may want someone to prepare your returns and help spot tax breaks. Self-employed people may need a hand with calculating quarterly estimated tax payments and claiming deductible business expenses. If you own a rental property, an expert can help you sort through the convoluted tax rules.
An inheritance or some other windfall may present you with extra cash that you’re not sure how to handle. You may also have more funds as a result of, say, steady progress in paying off debt or a hike in income. An adviser can help you figure out what to do with the money.
Depending on how complicated your estate is, you may want to enlist experts in tax planning and other areas. You may need advice, for example, if your assets will be subject to estate tax. (For 2016, assets transferred to heirs are exempt from federal tax if they’re worth $5.45 million or less for individuals or $10.9 million or less for married couples. But a number of states tax estates at much lower levels.) “It’s also important to seek estate-planning guidance in the case of a second marriage or any nontraditional family situation,” says Jordon Rosen, an accredited estate planner and CPA in Wilmington, Del.
What kind of adviser should I look for?
You may need help with just a slice of your finances. But the more complex your situation, the more likely you’ll need a group of experts to cover all the bases—perhaps a financial planner to take a holistic look and to act as “quarterback” of the team, an accountant to prepare your tax return and delve into the finer details of tax planning, and a lawyer to handle your estate documents. In some cases, a single person or firm may be able to take on multiple duties. Some CFPs, for instance, are also CPAs, with in-depth tax knowledge.
Use the guidelines below to search for a professional who can help you reach your goals. Some credentials carry more weight than others. Be wary of “senior specialists,” for example, whose bona fides may be flimsy, says Eleanor Blayney, consumer advocate for the CFP Board. See a list of designations at Finra's Broker Check, including the issuing organization and educational requirements for each. To minimize conflicts of interest, look for a fee-only planner, who receives compensation only from clients and accepts no commission for selling investments or other products (search for a fee-only planner at www.napfa.org).
General financial planning. A certified financial planner can make a broad assessment of your finances. A CFP must complete coursework in personal financial planning, pass an exam, have two to three years of planning experience, and commit to a code of ethics and standards. He or she will review your cash flow (including budgeting, savings and debt), insurance coverage, estate and tax planning, and investment allocation. A chartered financial consultant (ChFC), who also meets advanced education and experience requirements, can provide general financial planning services, too. A chartered financial analyst (CFA) is an investing specialist who has successfully completed a three-part exam, including testing on portfolio management and wealth planning.
After the analysis, you should receive an action plan with steps toward improvement, and you may also get projection reports that show how much you need to save to reach goals such as retirement and funding college.
Fee-only planners may charge a flat annual retainer (which could run a few thousand dollars or more); on an hourly basis (often from $100 to $250 per hour); by the project (from $1,000 up to $10,000 for a comprehensive plan); as a percentage of assets, if they’re managing your investments (from about 0.5% to 1.25% of your investable assets); or some combination of those models.
Tax advice. If you’re looking for a professional to prepare your tax return, make sure he or she is credentialed—anyone can hang out a tax-preparer shingle. Enrolled agents have passed an IRS-issued test on preparing tax returns (or they have worked for the IRS). They must also meet continuing-education requirements, and they have full rights to represent you before the IRS. You can find an enrolled agent at www.naea.org. The average price to have a professional complete an itemized Form 1040 with a Schedule A and a state tax return was $273 for the 2014 tax year, according to the National Society of Accountants.
If you want help with your overall finances but with an emphasis on tax planning, a certified public accountant who is also a personal financial specialist (PFS) or CFP may be the best choice. A certified public accountant has a high level of expertise in tax law, must pass a rigorous series of exams and is licensed by the state. A CPA who has a PFS designation has also passed a separate test about broader financial planning. At www.aicpa.org, you can find contact information for each state’s CPA society and search for CPAs near you. And at www.acplanners.org, you can search for tax-focused, fee-only planners who charge clients on a retainer basis.
If you have a broad relationship with your tax adviser, he or she may charge an hourly or retainer fee, by the project, or as a percentage of assets if he or she manages investments for you.
Estate planning. You’ll need a lawyer to draft a will that states how you want to divvy up your assets and appoints a guardian for your children or other dependents. Other documents to draw up include a living will, which outlines your wishes for end-of-life medical care; financial and health care powers of attorney, which designate who will handle decisions if you become incapacitated; and possibly a revocable living trust (see Disinheriting a Child and Other Good Reasons to Get a Living Trust) to streamline the transfer of assets to heirs after you die, says Michael Novak, president of the Estate Planning Council of Cleveland.
Your financial planner, accountant or other adviser may be an accredited estate planner (AEP), who has taken specialized coursework or has at least 15 years of experience in estate planning (search for an AEP at www.naepc.org). An estate planner’s fee depends on how he or she charges in general practice. To have a lawyer draw up documents, you may pay anywhere from several hundred dollars to several thousand dollars, depending on their complexity, says Rosen.
What if I need help with my investments?
Many CFPs will also manage investments. Or you could choose a broker who works for a brokerage firm or hire an independent registered investment adviser (RIA), who may also be a CFP. A lower-cost option is a robo adviser (see Best of the Online Brokers).
An adviser who manages your investment portfolio may require a minimum amount of investable assets. The floor could range from $50,000 or $100,000 up to $1 million or more. Ask advisers you’re considering how much their clients typically have in assets to see how experienced the firm is with people who have finances similar to yours. At www.letsmakeaplan.org and www.plannersearch.org, you can search for CFPs based on asset minimums and fee structure.
Most money managers are paid by a percentage of assets under management—typically about 1%. Find out which assets are included in the fee calculation. Some advisers include only the assets they manage; others add your 401(k) balance, even though they don’t administer it; and a few assess the fee on all assets.
RIAs must put your best interests first, according to the fiduciary standard, and provide you with a Form ADV, which outlines the services they offer and their fees.
Working with a commission-based broker may be less expensive if you buy and hold your investments. But ask questions to make sure brokers are putting your interests first. “Ask if they use proprietary products and, if so, why? Do they think they’re better than everything else? Do they get paid commissions when they use them?” says Brooks Herman, head of data and research for BrightScope, which provides information about advisers. Also ask about fund fees and share classes (you can compare fees at www.finra.org/fundanalyzer).
How do I find a good adviser?
Get recommendations from other financial professionals, such as your accountant, insurance agent or lawyer, or ask your friends and colleagues. Talk with people who have similar goals and situations to yours.
You can look up advisers who hold the CFP credential at www.letsmakeaplan.org or find fee-only advisers at www.napfa.org. Both databases let you search by zip code. Don’t have a sizable (or even measurable) net worth? You can search for a CFP who requires no asset or income minimums through the XY Planning Network (www.xyplanningnetwork.com), whose members focus on Generation X and Generation Y clients, or the Garrett Planning Network (www.garrettplanningnetwork.com)—a great option if you want a one-time check-up, because its planners charge by the hour and require no long-term commitment.
Come up with half a dozen advisers who look like a good match. With today’s technology, you can work with an adviser from a distance, but many prefer to at least start the relationship in person. Before you contact them, check them out.
Okay, how do I check them out?
Registered representatives (brokers) who work for brokerage firms are regulated by Finra. Registered investment advisers who manage more than $100 million in assets are generally regulated by the Securities and Exchange Commission; those who manage less are regulated by state securities regulators. And insurance agents are regulated by their state insurance department.
Start by going to BrightScope.com’s 360 Advisor Check, which consolidates information from the securities regulators (but not state insurance departments) and provides a snapshot of the adviser’s business, including total assets under management, number of accounts, experience, credentials and types of compensation.
Then go to the regulators’ databases for more details. The SEC’s Investor.gov includes registered investment advisers of any size. Click on “view detailed report” for the public disclosure report, which provides information about the adviser’s industry exams, professional designations, experience, previous employment, other business activities, and any complaints or disciplinary actions by regulators. You can also look up the adviser’s Form ADV (click on the “firm” tab), which includes information about the firm’s assets under management, number and types of clients, and other information about its business. Investor.gov also links to Finra’s BrokerCheck (http://brokercheck.finra.org) if an adviser has ever been regulated as a broker, even if the adviser is no longer a broker. It provides similar information about advisers’ employment, exams and any disciplinary action, even from years ago.
Everyone who sells securities should be included in one of those two databases. “If they don’t show up there, that’s a big problem,” says Lori Schock, director of the office of investor education and advocacy for the SEC. An exception is advisers who sell only insurance and fixed annuities and are regulated by their state insurance department. The biggest issue to watch for is “a regulatory history that resulted in actual damages for the clients,” says Michael Kitces, director of wealth management for the Pinnacle Advisory Group, in Columbia, Md. A fine, arbitration award or financial settlement is a bigger red flag than just a complaint.
Also check out advisers with your state insurance department (find links at www.naic.org) and at Investor.gov, in case they have a record as a broker or adviser, even if they only sell insurance now. “We saw a pattern of bad actors who lost their securities license and then continued their bad acts on the insurance side,” says Matthew Guy, of the Florida Department of Financial Services Bureau of Investigation.
Finally, if they have professional designations, see whether they’re in good standing. The CFP database (www.letsmakeaplan.org) lists compensation method, minimum investable assets, CFP Board disciplinary history, and any bankruptcy disclosures over the past 10 years.
What questions should I ask?
Contact perhaps three or four advisers who passed muster to find out if they’re a good match for you. Two equally good advisers may have very different philosophies and personalities, and one may be better for your situation.
Find out whether the advisers require a minimum amount of assets, how they’re paid, the services they provide, and the types of clients they specialize in. “Find out whether they have experience dealing with people like you,” says Gerri Walsh, senior vice president of investor education for Finra. For money managers who charge a percentage of assets, ask what services you can expect for the fee. Many advisers provide investment management as well as comprehensive financial planning for no extra charge.
Rick Rodgers, the Lancaster, Pa., CFP, usually talks with prospective clients on the phone before they come in to make sure they’re looking for the type of services he provides. Then he invites them to his office for a free consultation. He asks them to bring in their tax returns and investment statements, and they talk about their goals and concerns. “We try to quantify those goals, and then we take a week to prepare a plan that outlines what we’re going to do,” says Rodgers.
When you meet for face-to-face interviews, ask advisers who their ideal client is. Ask how they choose investments, how they measure their success and how they’ve dealt with a downturn. Find out about compensation and fees. Do they receive commissions, and do they get more money for selling certain products or investments? If they charge an asset-management fee, are there any extra fees or charges? Ask what they are not licensed to do and whether they work with other specialists to provide those services. If an adviser isn’t licensed to sell insurance, for example, does the adviser work with an insurance specialist to implement that part of the financial plan? Find out how often an adviser will communicate with you and whether portfolio statements will show performance and progress toward your goals. And ask about any issues that came up while you did your due diligence—such as frequent moves or complaints.
Finally, assess how comfortable you are working with the adviser. “The relationship piece is so important, because when the market takes a tumble or someone has a difficult family situation that requires financial guidance, you have to feel that level of trust,��� says Pamela Sandy, a CFP in Cleveland and president of the Financial Planning Association.