A personal financial advisor is a financial professional who is paid to provide customized financial investment advice, based on your unique set of circumstances. That said, we're still talking about a very broad category, which covers many different backgrounds, certifications, and degrees.
You've probably heard of a few: MBA, JD, CPA, CFP. But what about an "Accredited Financial Counselor", or a "Chartered Financial Consultant"? You've probably never heard of either of them, let alone know the differences between the two. How can anyone know who's the "right" choice?
Fear not...read on.
"Fee-based" financial advisors are similar to fee-only advisors, with one important distinction. While a majority of their revenue comes from client fees, a small part of their income can come from selling financial products, either from a brokerage, mutual fund, or insurance company.
"Commission-based" advisors are compensated when you them. a percentage of the amount you choose to spend or size of the portfolio they manage. There are potential conflicts of interest because they make money when you buy something, regardless of whether or not it is a good “fit” for your situation.
The key distinction between these advisors is whether they have fiduciary responsibility. In other words, are they legally required to put your best interest first? Are they legally required to disclose conflicts of interest, like earning commissions from products they sell?
A fiduciary can't sell you something that doesn't fit your needs, goals, and/or risk tolerance, or you could sue them. They have a legal responsibility to you, their client, to disclose conflicts of interest (like earnings commissions on products they sell you).
Fee-only advisors are fiduciaries. Fee-based advisors usually are fiduciaries, but don't have to be. Commission-based advisors usually aren't fiduciaries, but can be.
NAPFA is an American trade organization, created for fee-only advisors. Their mission, as stated on their website, is:
In order to be a member of NAPFA, personal financial advisors and investment specialists must meet a strict set of professional standards. This is done through the process of peer reviews for a potential candidate’s work (e.g. comprehensive financial plan for a client).
A "comprehensive" plan must meet the common needs of many individuals and families, including:
NOTE: You can start improving your financial future right now by clicking on the links next to each bullet point. Save time by preparing before a meeting, so you can spend time on specific questions rather than rehashing your basic info!
As you can guess, the strict criteria keeps membership small (~2400 members as of the creation of this page). But these standards work in your favor.
NAPFA members have a reputation for excellence and integrity, which is hard to come by, as seen during the 2008 financial crisis.
The site has a simple interface for you to use in your search.
The National Association of Personal Financial Advisors Website
After entering your home town or zip code, a list of local NAPFA members will appear. You can also search for a specific advisor to see if he or she is listed.
Along with a phone number, the results include a map of the address, a short description for the advisor, a link to the advisor's website, and email address if available.
NAPFA Search Results - Detroit, Mi
The "Refine Results" option is the best feature of the site. By following the link, you can select the specific specialties you need, including:
Refining Your Search Results
For example, you've done everything you can with this site, learned all about creating your process and have some things on autopilot, but you're concerned about how it will impact your taxes.
Or, maybe you're nearing retirement, and you need some advice on how to pay for medical or life insurance using your retirement accounts. In both those cases, it's time to seek out some advice.
It is also appropriate to seek out financial investment advice when you care about your money (Rule Number 1), but are wise enough to know you can't or don't want to do it on your own.
Keep an eye out for "hidden" fees and any payment quoted in percentages. 1% or 2% does not seem like a lot, but as your account grows, the annual commission you're charged also increases.