You’ve decided it’s time for you to finally hire a financial advisor. There are a ton of advisors out there, and pretty much anyone can call themselves a financial advisor. What’s the best way to find a good financial advisor? In this blog, I’ll show you how you can find a financial advisor you can trust.
Finding the right financial advisor for you:
There are many different financial advisors who specialize in different areas, such as optimizing your 401(k), saving for your children’s education, taxes, retirement planning, and more. They may target specific clients based on income level, age, and the area that they live.
It’s important that you find a financial advisor who focuses on your specific life stage. Here at District Capital, we primarily work with professionals in their 30s and 40s. So, the first step to finding a financial advisor that’s right for you is to think about the life stage you are in and some of the goals you want to achieve.
Start with a Google Search for ‘Financial Advisors near me.’
The most popular search term that people use to search for a potential financial advisor is ‘financial advisors near me’. When I type this into Google, the first three companies that come up in the search result are Ameriprise, Edward Jones, and another Edward Jones Advisor. The first thing that I notice here is these top three are big box firms, which are typically broker-dealers.
You generally want to stay away from broker-dealers, so keep scrolling until you find one that looks like an independent financial advisory company. Keep in mind that many financial advisors now work virtually so it’s up to you if you want to work with someone in your area or virtually. This is a great way to start your search for a potential financial advisor.
What are their credentials?
Before you make an appointment with a potential financial advisor, you should look up and verify their certifications. You may be surprised to know that some financial advisors will not have credentials. That’s why it’s important to carefully evaluate potential financial advisors and make sure that they are a good fit for you. If you want to find a financial advisor that has good credentials, like a CERTIFIED FINANCIAL PLANNER(r), one of the best ways to find one is the CFP Board.
Once you go to the website you can input your zip code to find a financial advisor near you. I am based in Washington, D.C so I’m going to type in a D.C. zip code. The first thing that you’ll see here is the minimum investable assets. Many financial advisors target retirees or near-retirees that have around one to two million in assets. These financial advisors usually have a criteria for really high minimum investable assets. As you can see while searching, there are many with high minimum investable assets and brokers and dealers.
Are they a fiduciary financial advisor?
Fiduciaries are financial advisors who have a sworn oath to act in your best interest. They are bound by fiduciary duty. They are not tied to a specific company and they avoid conflicts of interest. Financial advisors who are not fiduciaries are held to a suitability standard. This means that they can recommend products that are suitable to you, but they may be more expensive, or the financial advisor may make a commission from that recommendation. That’s why it’s important to find a fiduciary financial advisor so that you know you are getting honest advice. You can go to the SEC website to check if the potential financial advisor is fiduciary.
Another great website to find fiduciary financial advisors is NAPFA (National Association of Personal Financial Advisors). NAPFA is the country’s leading professional association of fee-only advisors. A fee-only financial advisor offers their financial services for a set fee. There are no hidden costs. They receive compensation solely from the fees that clients pay them. They do not earn commissions for recommending certain products or services.
NAPFA was founded back in 1983 because a group of financial advisors didn’t want the conflict of interest that arises when you get a commission out of an advisor product that you’re recommending. As you can see on the NAPFA website, some financial advisors also have the CFA credential. It’s very rare that someone has a CFP(r) and a CFA. A CFA is the most recognized designation on investments. If someone has a CFA, then they know what they’re talking about when it comes to investments. When you scroll through NAPFA, you will find District Capital Management. And as you can see, I am a CFP(r) and a CFA.
Check the financial advisor’s background.
One of the most important things to check before you hire a financial advisor is to look at their Form ADV. This is a key disclosure document that investment advisors must file with the U.S. Securities and Exchange Commission and state securities authorities. It reveals everything from the fee structure to any misconduct. Here is our Form ADV.
How do I narrow down my selection of financial advisors?
When you start searching for a potential financial advisor, it can be overwhelming. Once you have found a good pool of financial advisors that you might want to work with because they’re all fiduciaries and have CFP designations, how do you narrow it down?
The last thing that you can compare is cost. The annual fee that most of these fiduciary financial advisors in the Washington, DC area will range from around $3,000 to around $5,000 per year. Some of them may charge additional fees to create the initial plan or to have assets managed. It’s important that you reach out to the financial advisors to get the overall fee to make sure that it fits within your budget. You can view our pricing here.
When researching a potential financial advisor, remember to check the credentials and to see if they’re a fiduciary. Once you have narrowed it down to a few potential financial advisors, you might be wondering what you should ask them during the initial consultation. We cover that in our next blog – what questions should you ask then during your interview with these potential financial advisors?
Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help 30s and 40s professionals achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.