Fiduciaries are legally required to put your best interest first, so the advice you receive should be purely focused on achieving your goals, not generating commissions for them.
The compensation structure of an advisor can influence the advice you receive and the products they recommend. Understanding whether the advisor is fee-only, commission-based, or a mix of both can help you discern an advisor's incentive when making decisions on your behalf and giving you recommendations.
Respected designations like CFP®¹, CPA², or CFA®³ reflect expertise, integrity, and a commitment to best practices.
It’s always worth knowing what you’re paying for. Is the value of the advisor solely wrapped up in managing your investments? Or do they (or their firm) have the resources and expertise to integrate tax strategies, retirement planning, and estate management into one comprehensive financial plan?
Short-term and long-term tax planning can impact your overall financial plan and should be conducted annually. Will the advisor coordinate with your tax preparer to offer proactive tax planning year after year? Better yet, does the advisor offer tax preparation services so that both the planning and the filing of your taxes are fully integrated?
Ask what sets them apart, such as a holistic approach, a coordinated team, or specialized services, and evaluate if these differentiators resonate with your needs and values.
Advisors often specialize in different client profiles. Whether you're preparing for retirement or managing generational wealth, knowing that the advisor has worked with similar individuals/families will give you confidence as they help you navigate your unique circumstances.
A good advisor keeps you informed and involved. Ask yourself the following questions:
Do they proactively schedule regular check-ins and updates? Or are they more reactive in their approach? When you do get together for meetings, what do you talk about?
An advisor should do more than talk about investment returns. They should ask good questions and seek to understand your goals, as well as how those play into your financial plan, tax planning strategies, insurance coverage, and current estate plan.
A seasoned advisor will have had the distinct pleasure of walking hundreds of families through all of life’s seasons. This puts them in a unique position to say ‘I’ve seen this before’ and offer you wisdom as you navigate both the joyful and challenging seasons of life.
A good advisor will ensure all the i’s are dotted and t’s are crossed in preparation for this event. Once it happens though, it’s important to know how they will support surviving loved ones. Are they familiar with your estate plan? Will they coordinate with your attorney and tax accountant through the transition? How will they provide peace of mind?
Understanding Financial Certifications
When evaluating a financial advisor, it’s important to consider their qualifications and professional designations, as these reflect their expertise and dedication to high standards in financial advising. Since one individual rarely holds more than one of the following certifications, surrounding yourself with a team who collectively carry these certifications can give you access to a broad array of expertise and prove useful in building a comprehensive wealth management strategy.
This list is not exhaustive, but it covers the primary certifications you should look for when hiring a financial advisor for an area of your financial life. Working with advisors who hold these designations helps to ensure that they’re professionals who not only have specialized knowledge but are committed to ethical standards in the industry.
Notes:
1 CFA® designates an international professional certificate that is offered by the CFA Institute. Candidates that pursue the certification have in-depth knowledge of securities types and investment vehicles. In order to qualify for a CFA®, candidates must meet standards for examination, education, experience, and ethics. First, candidates must possess a bachelor’s degree from an accredited school, or its equivalent. Second, candidates must have completed 48 months of qualified professional work experience, generally related to evaluating or applying financial, economic, and/or statistical data as part of the investment decision-making process involving securities or similar investment. Third, candidates must pass a series of three six-hour exams that cover ethics, quantitative methods, economics, corporate finance, financial reporting and analysis, security analysis, and portfolio management. Finally, candidates must meet and continue to adhere to a strict Code of Ethics and Standards to govern their professional conduct, as reviewed by the CFA Institute.
2 The CFP® designation identifies individuals who have completed the mandatory examination, education, experience, and ethics requirements mandated by the CFP Board. Candidates must have at least three years of qualifying work experience that relates to financial planning. Candidates are required to hold a bachelor’s degree from an accredited university or CFP Board equivalent. CFP® candidates must pass an examination that covers over 100 financial planning topics, which broadly include: general principles of financial planning, insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning, and estate planning. Finally, candidates have ongoing ethics requirements and oversight by the CFP Board.
3 The CPA designation is given to qualified accountants. Candidates must pass the Uniform CPA Exam as well as meet education and work requirements including holding a bachelor’s degree in business administration, finance, or accounting, and completing 150 hours of education. Candidates must also have two or more years of public accounting experience. The CPA license is provided by the Board of Accountancy for each state.
4 CDFA™ professionals must develop both their theoretical and practical understanding and knowledge of the financial aspects of divorce by completing a comprehensive course of study approved by the Institute for Divorce Financial Analysts. CDFA™ professionals must have two years minimum experience in a financial or legal capacity prior to earning the right to use the CDFA™ certification mark.
5 The CSLP® designation helps advisors to accurately advise clients about student loan repayment within the scope of their financial goals. Candidates must have two years of industry experience in financial services or a bachelor's degree in business or finance from an accredited college or university, and also hold a license and/or registration in a regulated financial services industry. Candidates must also pass a final examination and complete ongoing annual education requirements. The designation is completed through the Certified Student Loan Advisors Board of Standards.
6 The FPQP® designation is awarded by the College for Financial Planning to individuals who complete a comprehensive course of study that covers key financial planning concepts, including the fundamentals of financial planning, insurance, investments, taxes, retirement, and estate planning. To earn the designation, candidates must pass an examination and complete continuing education requirements annually to maintain the designation.
7 Individuals who hold the CFS® designation have completed a course of study encompassing mutual funds, ETFs, REITs, closed-end funds, and similar investments. Topics include fund analysis and selection, asset allocation, and portfolio construction. The program is designed for approximately 15 weeks of self-study and an exam administered online.
8 A CLU® designation means a financial professional has gained an in-depth understanding of the practical, legal, and ethical aspects of life insurance underwriting, and can provide the best solutions to a diverse clientele facing a range of risks and financial situations. The CLU® designation is a significant designation for U.S. securities entities, as well as the designated business owners for securities companies and securities broker-dealers.
9 The ChFC® designation is awarded to financial advisors who have completed a rigorous program of study, focusing on a wide range of financial topics such as insurance, income taxation, retirement planning, and estate planning. This comprehensive education equips ChFC® holders with the expertise needed to provide sound financial advice tailored to the unique needs of their clients. Unlike some other financial certifications, the ChFC® program emphasizes practical, real-world applications, ensuring that advisors are well-prepared to address the diverse challenges faced by their clients.
