5 Steps to Seeking Sound Financial Advice

Updated on August 11, 2015

A how-to guide for vetting Wealth, Financial and Retirement Advisors

For most of us, a financial advisor is an integral component of successfully navigating retirement and all of its complexities. What is often not clear to many are the important factors that go into choosing the right Advisor and the difference this selection can make. These 5 steps are designed to guide you toward the best fit for your particular needs and away from misconception regardless of your net worth, goals, health, or age.

Why is this important? There are significant differences in the services and solutions offered by the robust—and at times overwhelming—list of firms and financial professionals available to help guide retirees. So, how do you decide which financial expert to tap to best fit your particular needs?

Understand the type of financial advisor

There is a broad spectrum of professional advisors to choose from that offer surprisingly diverse services and products based on their areas of expertise and licensing.

  • Brokers or Registered Representatives can buy and sell securities—stocks, bonds and mutual funds—for their customers.
  • Insurance Agents sell Annuities, Life, Health and Property & Casualty insurance policies. 
  • Investment Advisers Representatives, also known as Wealth Managers, Financial Planners, Financial Advisor, or Investment Counselors—offer advice on a fee only bases about securities personalized to the needs of their clients.

For almost all of us, our financial planning will rely on solutions encompassing both investments and insurance, so you’ll want to be sure your Advisor(s) do, too. Deciding to work separately with a securities-oriented professional on the investment component of your portfolio, for example, and an insurance-agent on an annuity is a preference entirely up to the consumer, but it’s often easier and more streamlined to have financial advisors operating under one umbrella. If they’re not, ensure your financial advisors are working in conjunction with one another and both have a thorough understanding of your short and long term financial goals.

Understand what type of firm the financial advisor works for

Fully grasp how the firm a potential advisor works for will influence their recommendations—for better or worse. There are three fundamental types of financial advisory firms with diverse and distinctive capabilities.

  • Wire house—an archaic term used to describe a broker-dealer. These can range from small regional brokerages to massive household-name companies with offices around the world.
  • Insurance—many advisory firms specialize in Insurance (typically Life and Annuity) solutions only. This group can be broken into two tiers: large captive companies offering primarily in-house designed products and smaller independent firms with contracts sourced from multiple carriers. 
  • Registered Investment Advisors (RIA) firms are registered either with the Securities and Exchange Commission (SEC) or state security authorities. These firms can range from large national brands to small single advisor shops. They typically offer financial planning and fee based asset management, but may also have additional licenses to help their clients with their Insurance needs as well.

But, what really matters is if the advisor you look to for unbiased financial guidance is actually bound to you as a fiduciary, meaning he or she has a legal duty to act in your best interests at all times. Financial advisors who are not bound to their clients as fiduciaries are held merely to the suitability standard, meaning anything they recommend or sell has to be suitable for their clients according to the standards of their firm, which might not always be in the best interest of the client.

Run a background check

Brokers, Advisors, Agents and firms should freely provide you with their CRD or licensing numbers, which identify them in nationally maintained public professional databases. These databases are required to be kept current and detail key information such as important disclosures, past complaints, and employment history.

If you’re working with a professional or firm that sells stocks, bonds, mutual funds and other securities, visit www.brokercheck.finra.org for brokers or adviserinfo.sec.gov for fiduciary investment advisors, which both maintain employment history, certifications, and licenses for all registered securities advisors—as well as any regulatory actions, violations or complaints they may have incurred. Some of the disclosure events may be harmless, but look out for red flags like a large settlement or patterns of repeated violations. If there is anything that makes you apprehensive, it’s worth having a conversation about.

Also, pay close attention to any designations your potential advisor may have, such as the CFP, CRPC, and CTFA to mention a few—which indicate a higher level of education, training, experience, and credibility.

What is their process?

Before any Advisor can offer you solutions they should thoroughly understand your financial condition, typically beginning with an unbiased examination of your assets and investments today, ideally using a comprehensive financial plan. This plan will give you an understanding of whether you are already on track toward reaching your goals, have room to improve, or you need to make a major change. Any solutions proposed by your prospective advisor to improve the outcome of your plan can be diverse in nature, since every person is different, and requires a degree of scrutiny. Understand upfront the process they leverage to identify the proposed solutions by examining their underlying assumptions-rates of returns, fees and costs for example-to better understand what benefits may come from making a change and at what costs.

Understand the pay structure

Advisors’ pay structures typically fall within three buckets: fee-based, commission or hourly. There are certainly pros and cons to each, but keep in mind how their less than altruistic incentive of getting a sizable commission from your insurance package could influence their advice. Most Advisors earn their income using a combination of these buckets.

Regardless of where you are and what you are looking to achieve, employing these 5 steps in finding and vetting your Financial Advisor(s) will steer you toward your definition of success.   

Co-authored by Ronald Briggs and Jasnik Parmar of Caitlin John, a private wealth management firm that is bound by fiduciary standards and works hand in hand with individual and institutional investors on capital appreciation and income strategies utilizing advanced risk management techniques. For more information, visit www.caitlinjohn.com.


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