Broker Check

Selecting The Right Financial Advisor For You

With so many different sources of financial advice, it can be difficult and intimidating to select the advisor that aligns best with both your need for financial advice and your personal style. We offer some questions for you to consider when you're selecting what is hopefully the last financial advisor you'll ever need.

What's your Business/Compensation Model?

Since no one works for free, how will your financial advisor be paid-and perhaps a more important question, how would you prefer to compensate your advisor? There are three basic business models in the financial advisory world, and a hybrid model that combines all elements of the three.

Fee Only Business Model

This advisor offers advice on a business model similar to that of an attorney, in the form of an hourly fee. The time you spend on the phone or face to face with your advisor is billed at an hourly rate, as well as any time your advisor spends designing your plan or working on your behalf in other ways. This time is customarily kept track of in tenths of an hour (one billing increment every six minutes) and is generally billed quarterly.

Fee-only advice can also take the form of a flat fee for a complete plan. This could be a comprehensive plan which covers all areas of your financial life, including budgeting, tax planning, investment management, insurance management, debt management, college planning, and retirement planning. It could also take the form of a more limited plan that addresses only one or two of these areas. The fee involved will generally be commensurate with the amount of work and time required to complete the plan.

Fee Based Business Model

This advisor generally offers asset management services, designed to outperform a benchmark, such as a stock index, or to target a specific type of financial result over a particular period of time. (Naturally, there's no guarantee that either will occur.) The fee is a fixed percentage of the amount of assets being managed, and is generally charged monthly or quarterly. Under this arrangement, the advisor's compensation increases as the client's assets increase; conversely, the advisor takes a pay cut if the assets in the portfolio decrease. This type of business model is common in wirehouses and stock brokerage firms.

Commission Based Business Model

This advisor is compensated by a commission through the sale of financial products that are used in the plan. Sometimes the commission is paid by the customer in the form of a ‘sales load' or ‘ticket charge'; other times the commission is paid by the company whose products are being sold directly to the advisor. Generally the advisor also receives a very small ‘trail commission' going forward on the products as well (typically ¼% of assets), which compensates the advisor for ongoing service and advice. This type of business model is common in insurance based firms and broker/dealer firms.

Hybrid model

This advisor can be compensated in any of the above ways, subject to the client's needs, choice, and customer requirements. Typically, if any commission based products are to be offered in the plan, the advisor has the option to offset any planning fee involved. This can be very advantageous if everyone agrees that these products are suitably the best fit for the final plan, and can greatly reduce the cost of the plan. However, some advisors will not offset planning fees if they also receive commissions on the sale of financial products. Every advisor is different, so it pays to ask the question to determine any particular advisor's policy. This model tends to give the client more control over fees and/or costs associated with designing and implementing their plan while still retaining ongoing professional advice. This business model is common in independent firms where the flexibility to design compensation structures exists.

What are your qualifications?

To provide advice, every advisor must be licensed as a registered representative by the Financial Industry Regulatory Authority (, or as a registered investment advisor by the Securities and Exchange Commission ( and/or state securities regulator. Under the former, the advisor's registered investment advisor is a ‘broker-dealer' firm, which provides supervision to the registered representative. Under the latter, supervision is provided by the regulators themselves. There are various levels of licensure which allow ever increasing levels of authority. Your prospective advisor's background can also be checked on FINRA's website using the ‘broker check' feature.

The financial advisory industry also has certain marques which denote a higher level of credentialing and experience beyond mere licensure with regulatory authorities. These marques often require a great deal of study, testing, experience, and ongoing continuing education. Just because an advisor has one of these marques does not necessarily make them a better advisor; however, it does speak to the level of commitment that a particular advisor has to his or her career and professional development.

Some of these marques are the Certified Financial Planner (CFP) marque; the Chartered Financial Consultant (ChFC) marque; the Certified Employee Benefit Specialist (CEBS) marque; and the Chartered Financial Analyst (CFA) marque. There are numerous others; query your advisor as to his/her marques , what they mean, how long they took to acquire (some require years of study, others can be obtained in an 8 hour seminar) and most importantly, what they mean to you in terms of how this additional training will benefit you as a client.

How often will you review my plan?

The answer to this question can be very broad. Most advisors will want to provide at least an annual review of your plan. Since circumstances and people's lives are in a constant state of change, a financial plan written more than five years ago is probably out of date and will need to be rewritten. While annual reviews will tend to keep most plans on track, some customers will require more frequent reviews of their situation than an annual review can provide.

Will you provide references?

In the absence of a referral or referrals from other satisfied clients, you may want to speak to others that your prospective advisor has worked with before retaining their services. Ask your advisor for a list of people you can speak to and question. Ideally, you will speak to people who have only been with the advisor for a short time, as well as those who have been with the advisor for a number of years.

Other considerations

Beside the basic questions above, you probably want to have a feel for how well the advisor's personality and style mesh with your own, how well they communicate with you, and how completely you feel that the advisor understands your situation. Get a sense of how you can communicate with your advisor; whether your call is always welcome or only during business hours; if you can have access to their cell phone. Can you only meet with the advisor at their office, or is the advisor open to meeting at other places? Remember that your prospective advisor has their own style and sense of who is an ideal client for them as well, spend time to ensure that you and your advisor will mesh well and be able to work well together.