Finding the Right Financial Planner for You: Fiduciary, Fees, and Focus

by | Aug 19, 2022

According to the Bureau of Labor Statistics (BLS), there are 275,200 financial advisors across the United States. How are you supposed to find one that values integrity, works in your best interest, and works holistically to help you with more than just your investments? Keep reading as hopefully after going through this you will feel excited and knowledgeable to find the right planner for your needs.

The three criteria that you should pay attention to when selecting one of the most important professional relationships you will ever have are: 

  • Are they a fiduciary (which means they are ethically and legally obligated to act in your best interest)?
  • How are they compensated and how do they charge for their services (aka who is writing their check/how are they getting paid)?
  • What is their focus or expertise in the financial planning world (there are SO many specialties and no financial planner can cover and know everything)?
How do you know if a financial advisor is a fiduciary?

A financial advisor held to fiduciary standard means that they are required to understand their client’s circumstances and provide advice that is in the client’s best interests. In contrast, an advisor that is not held to a fiduciary standard may provide advice that is suitable for your situation and may recommend products that give the planner or their firm a larger commission or benefit. There are a few designations that indicate that they are held to a fiduciary standard, such as the Certified Financial Planner™ (CFP®). However, having these designations does not always immediately qualify the advisor as a fiduciary. If the CFP® financial planner is working for a company that still compensates them based on their sales of financial products, they are at risk of not acting in your best interest. 

You will recognize if your Financial Planner is a fiduciary if they require a thorough review of your goals, situation, investments, and risk tolerance BEFORE recommending any financial products or investments. When hiring a financial planner, you should always ask if they have a written statement that confirms if they have a fiduciary obligation when working with you. A fiduciary is happy to provide you with this information. 

How is your financial advisor paid?

There are numerous compensation methods within the wild world of finance and most of them are not in your best interest, unfortunately. The way your financial planner gets paid is really important to understand before hiring them and will indicate the type of service you can expect. There are two primary ways a financial planner gets paid: commissions on financial products they sell you and a fee that they charge you directly for their services or a combination of the two. Let’s dive into what both of these mean for you.

Commission: A financial planner or the firm that the planner works for receives a commission based on a financial product they sell you. This can be the investments you make, such as a mutual fund, an annuity, or an insurance product. This is a very common method of charging for financial advice but is not always the best way for you and comes with an inherent bias on the part of the professional you hired. If your financial advisor gets paid only if you buy an insurance policy, they are most likely going to recommend that policy for you even if it isn’t a great fit. 

Empowering Finance and many other fee-only financial planning and wealth management firms believe that commissions create a bias that should never exist when you are giving financial advice. Rather, they charge a fee for their service so that they provide more unbiased recommendations for your financial future. 

Fee-only Planning: Financial planning firms can charge a client a fee for the services and advice they provide. This can be done in a few different ways:

  • An asset under management fee is charged based on a percentage of the money that you have them manage for you. For example, if you hire your planner to manage $1 million they might charge a 1% annual fee which would equate to $10,000 a year in fees. The more money you have to invest with the firm, the higher the fee. 
  • A flat fee is assessed based on your situation and level of service that is provided. For example, here at Empowering Finance, you have an upfront fee of $999-$5,000 depending on the complexity of your situation and a yearly fee of $6,000 for an individual and $8,000 for a couple. A flat fee is charged because we don’t believe that the amount of money you have to invest should dictate the level of service you receive and we want the fees to be as transparent as possible. Read or listen to this interview about flat fee financial advisors (along with a list of firms at the bottom) and why they are different. 
  • An hourly fee is another way a financial planner can charge a fee. For example, Empowering Finance charges an hourly rate of $333 per hour. This allows you to get advice on a specific topic or a simple situation as an affordable alternative to ongoing financial planning. 

The Fee Only Network is a great place to search for a fee-only financial planner that is also a fiduciary and independent (not affiliated with a brokerage firm, bank, or insurance company). In addition to the Fee-Only Network, you can also search for planners using the NAPFA (National Association of Personal Financial Advisors) directory, the XYPN Planning network, and the CFP® directory (but note that the CFP® directory does include professionals that could be commission and/or fee-based). This is a list of Flat-Fee financial planners that work with people in their accumulation stages of life and provide holistic planning as a core offering. This is a list of Flat-Fee financial planners that work with people in their retirement years.

Fee-Based planning is a combination of charging a fee for advice and also receiving commissions for any products sold to you. While the incentive to sell a product to their clients for the commissions is reduced by the fee charged, that bias still can exist and it is something that you need to be aware of when picking a professional to guide you on your financial journey. 

What is your financial planner’s expertise and focus?

There is a range of services available when it comes to financial advice. While many financial planners can provide holistic advice, knowing what exactly their niche is and their specialties will help you find the right planner for you. Some advisors only work with a certain demographic or stage of life, some require a certain amount of money or assets to invest with them, and some specialize in very specific investing/tax strategies. 

OK, now that you found someone that is a fiduciary, fee-only, and has experience working with clients like yourself, now what?

I recommend interviewing at least three financial planners before committing to one as this should be a long-term relationship and you want to set yourself up for success. Do you enjoy spending your time with them? Do the way they run meetings work for you (some run a fully virtual practices and others meet in-office only or a combination of both)? What is their investment philosophy? Do they ask questions that matter to you? How and where did they obtain their experience? Can you see yourself being transparent with them about how you feel about your financial life? And anything else that matters to you, this should be a very open and transparent conversation and relationship.