Investors looking for a financial advisor will find an industry in a state of flux.
The rise of robo-advisors like Betterment and Wealthfront has made investment guidance available for pennies—but a robo won’t help you plan for the future. Following the repeal of the Department of Labor’s fiduciary rule, which would have required investment advisors to put clients’ interests first, how can investors gauge potential conflicts of interest? And if you’ve got decades before retirement, should you be concerned about the aging of the industry? (By some reports, four in 10 advisors are 55 or older.)
The first rule for advisor seekers: Don’t underestimate the seriousness and rigor this task demands. The quality of the financial advisor you choose—and your relationship—can have a major effect on your future well-being.
Before beginning your search, consider what you want from the relationship. While a robo can efficiently build a diversified investment portfolio, most people benefit from a human touch. From insurance to college savings to retirement planning to charitable giving, a good advisor will help you with all aspects of your financial life, and solve problems before they occur. Human advisors also earn their keep by helping clients avoid bad market-timing decisions—buying when the market is surging or selling during a crash.
Start your hunt by asking for recommendations from good friends and trusted colleagues who are in roughly the same financial position as you. You might also look for curated lists of advisors who adhere to high standards, such as members of the National Association of Personal Financial Advisors or practitioners who make the B
Once you narrow down the list, search for each advisor’s name in databases run by the Financial Industry Regulatory Authority (brokercheck.finra.org) and the Securities and Exchange Commission (adviserinfo.sec.gov). (Barron’s,unlike some other advisor rankings, carefully vets the regulatory record of all advisors as part of its evaluation process.) Check the form ADV for red flags such as disciplinary actions and criminal convictions. The SEC database also allows you to search by firm, with access to information about the firm’s clientele, fee schedule, and conflicts of interest. The firm search turns up more useful information if you’re looking at a smaller or independent practice; big national firms have hundreds of pages of documents, very few of which are likely to be relevant to the particular advisor you’re considering.
Advisors use an array of pricing models, and the variety can make comparisons difficult. Many charge clients a percentage of assets under management. That fee is often 1%, with discounts for large accounts. Other advisors charge an hourly or project-based fee (for example, a few thousand dollars for a basic financial plan). And yet others are compensated via the commissions they earn for selling products such as insurance or their firm’s mutual funds.