How To Hire A Financial Advisor | A Step By Step Guide

How To Hire a Financial Advisor
“Follow these guidelines and you may just find your new best friend.”
— Derive Wealth

How To Hire A Financial Advisor | A Step By Step Guide

Yes, there is a right way and a wrong way to hire a financial advisor.

I don't think you need any examples of what happens when you approach it the wrong way.  It's already why when you hear the term "financial advisor" you clutch your wallet or purse a little tighter :)

This guide is intended for those who want the best of the best.  No settling and no comprises.  If this sounds like you, let's jump right in.

1 | Find a Certified Financial Planner

You wouldn't work with a Doctor without the MD certification.  Don't work with an advisor without the Certified Financial Planner (CFP) certification.

Make sure your financial advisor has obtained the Certified Financial Planner (CFP) certification.

To me, the CFP certification demonstrates the advisor is serious about financial planning.  They are not in it to make a quick buck.  They are willing to put in the time, effort, and dedication to better themselves through professional education.

It is not hard to find one. There are over 81,000 (as of 2018) current CFP professionals in the country.  

You can search for a Certified Financial Planner by your location or by the help you need.

2 | Require A Fiduciary Oath 

Save yourself the feeling of buyers remorse and start with an advisor who you can trust.

A fiduciary is a financial advisor that has the legal obligation to provide advice in your best interest. 

In other words, they cannot recommend advice that just makes their paycheck larger at your expense.

Finding a CFP who is also a fiduciary is a perfect match.

Sadly, if you work with a non-fiduciary, the opposite is true.  They have no obligation to do what is right for you.  Most will, as they should still have morals, but why take the chance.

Most fiduciary financial advisors are organized as a Registered Investment Advisor (RIA). 

The National Association of Personal Financial Advisors (NAPFA) is a membership based organization who require a fiduciary oath in order to be accepted.  Find a Fiduciary Financial Advisor by using their search tool.

3 | Require Fee Only Compensation 

How your financial advisor gets paid manners.

A fee only financial advisor does not receive compensation by selling products or working on commissions.

If you are looking for a life insurance policy, then "fee only" may not manner. But if you are looking for advice on how to retire, put your kids through college, buy a home, start a business, or just organize your finances, you want to remove as many conflicts of interest as possible.

Fee only financial advisors don't make money by selling.  This removes the "Am I getting advice that is designed for me or is my advisor just trying to sell me something?" feeling.

You can search for a Fee Only Financial Advisor in your area.

“The triple crown of financial planning is finding an advisor who has their CFP, has taken the fiduciary oath, and works on a fee only basis. If you find all three, consider yourself in good hands.”
— Derive Wealth

4 | Prepare Your Questions

Write down what issues you are facing and the help you are looking for.

It does not have to be long.  Maybe just one or two bullet points. 

A few examples may be:

  1. I just got married and looking for advice on how to merge our finances and prepare for buying a home/starting a family.
  2. I am close to retirement and don't know if I have saved enough.  I'm looking to see if retirement is achievable.
  3. I have been saving in my 401k but really don't look at it. I'm not sure if my strategy is sound or if I need to make changes.

All of these can give an advisor a running start to understand the help you need.  It also helps prevent getting into a relationship with an advisor who ultimately does not specialize in the help you are looking for.

5 | Schedule An Interview  

Your first impression is often times the right one.

An obvious step, but maybe not what you thought: there is no need to keep shopping around if you find someone who meets everything you are looking for.

Especially if you follow this checklist, you will be in good hands. 

Conversely, if you don't find what you are looking for at first shot, keep going.  Interview as many times as you need.

6 | Ask To See Sample Documents

Are you like me and love spreadsheets and charts? Or do you prefer more simplistic and artistic reports?

Ask to see sample documents to get a better understanding if you can relate to the financial plan you are buying.  If you get a computer generated, 60 page handout filled with financial jargon, it may not be for you.

If you are looking for help with investing, ask to see what the recommendations and reports look like. If you need help buying a home, ask to see what the analysis will look like.

You will thank yourself later when your advisor reviews the reports with you and you can easily follow along.

7 | Get A Proposal

Know the services you can expect and the costs involved upfront.

Get in writing the services you can expect and the terms of the relationship.  

At the very least, this may come in the form of a client agreement.  It will probably be full of legal jargon, but at least you will have a frame of reference to ask further questions.

At Derive Wealth, I actually provide a separate proposal outlining each service you can expect, the costs involved, and the timeline of services.

Regardless how it comes, don't just take an advisors word for it.  There is just too much room for error. 

8 | Get the Total Dollar Amount of Your Fees

You are not being demanding.  You deserve to know.

There is no other industry that is more vague when it comes to fees than the financial industry.  Knowing what you pay is not just about the dollar amount.  It is all about if your advisor is willing to be transparent with you.

Most advisors will be happy to tell you how they get paid.  They just won't translate it to dollars.

For example, here is what you may get in response:

  1. "I get paid based on a percentage of the amount of money you invest with me. This aligns are interests.  If your investments go up, I get paid more.  If they go down, so do my fees."
  2. "This product is free to buy.  There is no cost to you.  I get compensated by the company directly, but you do not pay anything."

All suitable answers but lacking one thing.  The actual dollar amount.  Why does dollar amount matter?  It gives you perspective on what your advisor stands to gain.

For example, if you have a $1M investment portfolio, and your advisor charges 1.25% of the balance, it is hard to relate to until you hear the numbers.  Hearing 1.25% is different than hearing $12,500.  

Same with an advisor working on commissions.  Of course there will be no upfront costs to buy their products.  But the compensation from the products they sell needs to be disclosed.

For the same $1M investment portfolio, if your advisor recommends an annuity, an average commission is in the 7% range. That's a $70k payday for your advisor that is "free" to you.  

Understanding what you are actually paying is a must before starting any relationship.

9 | Ask To Pay Your Fees By Credit Card

Who doesn't want credit card points?

With the new 2018 tax laws, investment and financial planning fees are no longer tax deductible. Why not get some extra benefits with your credit card?

Points aside, there is another reason I highly recommend you pay your advisor directly: it helps keep your fees in check.

Paying by credit card, invoice, or some other direct bill allows you to stay on top of the fees you are paying. 

But if you do not get a grasp of what you are paying up front, you will never know when your fees are going up or the ramifications of the decisions you make.


Follow these guidelines and you may just find your new best friend.  Of course, you can save time and check everything off your checklist right now by getting in touch!

Derive Wealth

Derive Wealth is an independent, 100% fee-only financial planning firm located in Pasadena, CA.  We specialize in creating personal financial plans designed to organize your life, get you to your goals, and take the worry out of your money.  We don't sell products and don't work on commissions. Instead, we provide financial advice you can believe in.