Choosing a financial advisor

Titles versus registrations

In the United States, most job titles in this industry are not legally restricted. "Financial advisor", "wealth manager", "financial consultant", "retirement specialist" and "wealth strategist" can be adopted freely. What is regulated is the activity — giving investment advice for compensation, effecting securities transactions, selling insurance — and each activity carries its own registration or licensing requirement.

So the useful question is never "what do you call yourself?" but "what are you registered or licensed to do, and with whom?" The main categories are investment adviser representatives at registered investment advisory firms, registered representatives of broker-dealers, insurance producers licensed by a state, and professionals such as CPAs and attorneys who hold their own licences. Many individuals hold more than one, and the capacity they act in can change during a single conversation.

Fiduciary and suitability

A fiduciary duty requires acting in the client's best interest, placing the client's interests above the adviser's own, and disclosing and managing conflicts. Investment advisers registered under US securities law generally owe this duty to their advisory clients.

A suitability-style obligation, historically applied to brokerage recommendations, requires that a recommendation be appropriate for the client. Between two suitable options, it has not traditionally compelled choosing the one better for the client and worse for the firm. US regulation in this area has been tightened in recent years, and the boundaries continue to be debated.

The practical complication is dual registration. The same person may act as a fiduciary adviser in one part of a relationship and as a broker in another, with the standard shifting according to which hat is on. This is legal and disclosed, but it is rarely announced mid-meeting.

Fee models

"Fee-only" and "fee-based" are different. Fee-only means compensation comes solely from the client. Fee-based means fees and third-party compensation. The two terms are one syllable apart and describe materially different arrangements.

No model is disqualifying. A commission-paid professional can serve a client well, and an AUM adviser can give advice that reduces their own fee. What matters is that you know which model applies, what it costs in absolute terms over a year, and where it points.

Credentials worth recognising

Financial designations run from rigorous multi-year programmes to weekend courses with an acronym attached. A few of the widely recognised ones:

• CFP® (Certified Financial Planner) — financial planning; requires education, examination, experience and adherence to a code of ethics.
• CFA® (Chartered Financial Analyst) — investment analysis and portfolio management; three sequential examinations plus experience.
• CPA (Certified Public Accountant) — a state-licensed accounting credential; the PFS specialisation adds personal financial planning.
• ChFC (Chartered Financial Consultant) — a planning-focused designation with a coursework requirement.
• CLU (Chartered Life Underwriter) — insurance and risk-focused.
• Attorney (JD, state bar admission) — required for legal documents such as wills and trusts.

Verify any credential with its issuing body rather than accepting the letters on a card, and be sceptical of designations aimed at a demographic — particularly those implying senior or retiree specialism, an area regulators have repeatedly flagged.

How to verify — free public sources

You can check most of what matters before making contact, at no cost. In the United States:

• Investor.gov — the SEC's investor education site, with a search tool for checking whether a professional is registered.
• Investment Adviser Public Disclosure — registration details and Form ADV filings for advisory firms and their representatives.
• FINRA BrokerCheck — registration, employment history and disclosure events for brokers and firms.
• Your state securities regulator — for state-registered advisers, typically those below the federal registration threshold.
• Your state insurance department — for insurance producer licensing and complaints.
• The issuing body of any credential claimed — most maintain a public verification search.

Two documents are worth reading in full before engaging an advisory firm. Form ADV Part 2A describes the firm's services, fees, conflicts and disciplinary history in narrative form. Form CRS is a short client relationship summary that states the services offered, the standard of conduct, and the conflicts. Both are free, and firms are required to provide them.

Questions for a first meeting

1. How are you compensated, in total, including anything paid by third parties? What would that come to for someone in my situation over a year?
2. Will you act as a fiduciary at all times, and will you confirm that in writing?
3. What are your registrations and licences, and where can I verify them?
4. Has any regulator, employer or client brought a disciplinary or arbitration action against you or your firm?
5. What exactly is included — planning, tax coordination, estate coordination, insurance review, ongoing meetings — and what costs extra?
6. Who is my day-to-day contact, and who covers when they are away?
7. What is your investment approach, and what evidence supports it?
8. Where are assets custodied, and who holds them?
9. How often will we meet, and what will a review actually examine?
10. What kind of client do you serve best, and what kind should go elsewhere?

That last question is unusually revealing. A professional confident in their niche will answer it directly. One who claims to be right for everybody has told you they have not thought about it.

Red flags

• Guaranteed or "risk-free" returns. Outside of specific insured deposit products, this claim is not credible and is a hallmark of fraud.
• Pressure to decide quickly. Legitimate opportunities survive a week of consideration.
• Reluctance to explain compensation. A professional who cannot answer this simply has a reason.
• Assets not held at an independent custodian. Making cheques payable to the adviser personally, rather than to a third-party custodian, is a structural warning sign.
• Statements only from the adviser. You should receive statements directly from the custodian and be able to check them independently.
• Complexity without explanation. If a strategy cannot be explained to you clearly, that is a problem with the explanation or the strategy — either way it is a problem.
• Everything solved by one product. A recommendation that arrives before the questions is a sale.
• Discouraging outside review. Any professional should be comfortable with you consulting your attorney or CPA.

Deciding on fit

Once competence, registration and compensation are verified, the remaining question is practical. Does this firm serve people whose situation resembles yours? Is the communication style one you can work with over years, not one meeting? Are the minimums and fee structure sensible relative to your circumstances? And do you understand what they said?

It is entirely reasonable to interview three firms, to take the documents away and read them, and to say no. It is also reasonable to conclude that you do not need ongoing management at all and to engage a fee-only planner for a one-off review instead. The right answer depends on complexity, not on what the industry considers normal.