How to tell which type of financial advisor is right for you

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How to tell which type of financial advisor is right for you

If there’s one thing that can be said about hiring a financial advisor, it’s that there’s never really a right or wrong time to start working with one.

Anyone, from the most financially inexperienced neophyte to the savviest investor, can benefit from having the guidance and advice of a professional. The right advisor can give you an objective, outside perspective on everything from doing your taxes, saving for retirement, managing your wealth, or just simply taking your money in a new, different direction.

Knowing what type of advisor to choose can end up being more confusing than the financial topics they’d ultimately help you with. Do you hire a financial planner, or an accountant? A CFP or a CPA? A broker or a dealer -- and aren’t those the same thing? They may fall under the umbrella of financial advisor, but they can differ in the services they provide.

Here’s a breakdown of some of those financial designations, and what they can (and can’t) help you with:

Certified Financial Planner (CFP)

What they can do: CFPs are the most generalized of financial advisors and can advise you on the widest breadth of financial matters. While most financial professionals can loosely call themselves a financial planner, Certified Financial Planners need to complete a rigorous certification process from the Certified Financial Planner Board of Standards, requiring them to obtain licensure and expertise in eight financial topic areas, including financial planning principles, risk management, investment and tax planning, retirement savings, and income and tax planning, among others. They also need to undergo a complex examination and ethics process for the CFP Board, and amass 4,000 to 6,000 hours of experience in the field.

A good CFP will be qualified to help you set long-term goals, answer questions on any financial topic and guide you through most wide-ranging financial situations, like choosing the right investment/retirement portfolio, tackling debt, helping you save for a child’s college education, or deciding between a whole vs. term life insurance policy.

What they can’t do: There’s not much a CFP is unable to advise you on, making them the best choice for all things financial advising. What a CFP can’t do is act in his or her own best interests and sell retirement savings products that only benefit their bottom line or encourage a conflict of interest. All CFPs, when providing holistic financial planning to clients, must act as a fiduciary. And come April, all financial advisors will be obligated to fulfill a fiduciary role for their clients with retirement investment holdings.

Certified Public Accountant (CPA)

What they can do: Every CPA is an accountant, but not every accountant is a CPA. A Certified Public Accountant gets their formal start as an accountant and then needs to complete four certification exams from the American Institute of Certified Public Accountants. CPAs need to continue their ongoing education in order to renew their licensure and stay up to date. An accountant can help you file and prepare your taxes, but a CPA can offer broader advice to you, as long as it’s tax related, on matters like maximizing your retirement investments or savings accounts to get the most tax benefits. CPAs are also qualified to perform tax audits and tax reporting and may charge an hourly or fixed rate.

What they can’t do: Only a handful of financial professionals, including CFPs, are Registered Investment Advisors, and a CPA isn’t one of them. If your issues are tax-centric, a CPA will help you immensely; but, if you’re looking for broader financial advice or planning help outside the tax realm, a CPA’s services may be limited unless they acquire additional education to become a Personal Finance Specialist, or PFS.

Investment Advisors and Registered Investment Advisors

What they can do: As the title suggests, an investment advisor can advise you primarily on investing and wealth management. They can recommend the right investments to make and products to purchase, and they’re qualified to conduct securities analyses and share that info with their clients. Registered Investment Advisors, or RIAs, are licensed through the Securities and Exchange Commission and may focus on bigger ticket investments; they’re also qualified to trade, buy and sell securities on your behalf, but they also need to assume their fiduciary responsibilities and work with your interests in mind first. While RIAs are regulated and bound to fiduciary rules, a conventional investment advisor may not be.

What they can’t do: There’s an assumption that investment advisors can tailor or customize your financial roadmap like a financial planner can. But that’s a fallacy; advisors and RIAs can only give you advice on investments. Thus, an investment advisor’s costs may be cheaper than a financial planner’s because of their narrow focus; however, even those fees may outweigh your returns if you’re not investing much money.

Stockbrokers

What they can do: A stockbroker can manage the relationship and transactions between their clients (the buyer) and the seller of financial products. At a full-service brokerage firm, they can provide additional guidance and advice in regards to investing, retirement and taxes, and buy and sell for you. "Broker" may seem like a common title anyone can call themselves, but in reality, they need to pass two main licensing exams through FINRA, the Financial Industry Regulatory Authority -- the Series 7 and Series 63 -- and maintain a relationship with the Securities and Exchange Commission.

What they can’t do: If a broker offers you guidance on specific retirement assets, like a 401(k) plan, an IRA or other retirement savings plan, they need to act in a fiduciary capacity as other financial professionals do. Outside of retirement planning, brokers who rely on commissions can still recommend or suggest products across the spectrum. When working with any financial professional that’s commission based or not always obligated by fiduciary rules, always use your discretion when making big decisions. Weigh the options they suggest against your needs, and determine which ones suit your finances best when you’re in buying mode.

When to choose a financial professional

Hiring one of the above financial advisors depends on the help they can provide, but also on your needs and your financial situation. Consider some of these reasons to consult with a professional:

  • Your financial future is unfocused. If you don’t have a clear-cut vision or plan of what to do with your money for the future, a financial advisor can give you the clarity, direction and discipline you need to set goals and reach them.

  • You don’t like managing money. You may have a tip-top personal budget, a great credit score and handle your day-to-day finances well, but you just don’t have the time or inclination to handle investments and manage your long-term wealth. A financial advisor can do this for you.

  • You want an objective viewpoint of your money. We’re all biased with how we spend or save our money. A financial advisor comes in with an outside perspective. Sort of like a counselor might do, a financial advisor brings a third-party, independent view of your money, advises you against mistakes you might have made on your own, and guides you in a better financial direction you might not have considered.

Finding the right financial professional is matter of fit and priority. What are your financial priorities right now? What might they look like in the future? And who can aid you the most? Decide on the type of professional you want and research their background and qualifications.

What licenses and certifications do they have? Are there any complaints or marks on their record? What’s their online presence look like, and what kind of feedback have they received? Meeting a potential advisor in person is always recommended to determine if personalities will mesh or if they will clash.

Vetting out your future advisor instead of picking one at random — and being honest with yourself and your financial situation — can ensure you find the right professional who’ll accomplish one thing: increase your wealth in the long run.

Image: 401(K) 2012