What to look for when choosing a financial adviser to help manage your money

Deciding how to convert a lifetime of accumulated savings into retirement income usually requires professional assistance.

Investment advice, like legal or tax advice, is highly specialized. Finding the right professional is critical. If you’ve accumulated some wealth, the number of people seeking to assist in the management of your wealth can be overwhelming. Everyone from your banker, insurance agent, stockbroker, mutual fund manager, lawyer and even your CPA wants to help. Here’s some advice on how to find the right financial adviser for you:

The ideal investment adviser possesses three characteristics: 1) attentive listener willing to learn the full picture of your personal circumstances; 2) trained/experienced expert on all relevant subject matter; and 3) ethical practitioner whose interests don’t conflict with yours and whose compensation properly reflects the time and wisdom provided.

The most reliable way of finding someone who meets the first characteristic is to ask people you trust who are working with an adviser they like for a referral. If you don’t have access to such referral sources, there’s always Google. Try searching for an investment adviser using search terms such as “local,” “experienced,” “flat fee” and “highly rated.”

Once you’ve acquired a handful of names, conduct a background check. The financial services industry is highly regulated with client-facing professionals who must have licenses, supervision and up-to-date knowledge of best practices. Any complaints reported against them are public record.

For financial advisers, FINRA’s BrokerCheck is a helpful resource for viewing advisers’ experience, licenses and any “disclosures” of complaints or legal actions. If the representative is an insurance agent, the National Association of Insurance Commissioners (NAIC) and Consumer Information Source (CIS) serve as watchdogs where you can find information akin to what FINRA provides for advisers. Searching for an adviser’s name and firm online can also yield some other important and relevant biographical information.

When you have your list narrowed down, investigate the advisers’ pay. The bottom-line question is simple: Is the adviser’s compensation based on the investment decisions you make? In other words, do your investment decisions impact how much the adviser or their employer earns?

The financial services industry has long blurred the relationship between your investment decisions and how much your adviser makes from those decisions. In my experience, even when properly disclosed and highly regulated, such conflicts function like gravity. They’re an invisible force that pushes financial advisers to recommend certain products or programs that increase the adviser’s own compensation. In short, you should be aware of all potential conflicts of interest when selecting an adviser.

Study after study has demonstrated the negative impact of conflicted investment advice through investment recommendations that are unnecessarily expensive to you but beneficial to advisers on returns. Understanding how advisers earn compensation will help you understand whether they offer conflicted or unconflicted advice. As a general rule, conflicted investment advice, no matter how clearly disclosed and highly regulated, is inferior to unconflicted investment advice.

You might hear advertisements for “fiduciary advisers” who profess they have your best interests at heart. However comforting this might sound, this claim doesn’t mean their advice is conflict-free. Paying for financial planning and investment advice as a percent of your liquid assets is usually not a good idea. Yes, they make more if you make more, but they also make money if you lose money and make increasingly more money every year for what is likely the same amount of work as your account grows. That is why I recommend you look for an investment adviser willing to work on an hourly or retainer fee basis, like you pay your accountant or attorney. “Flat-fee” investment advisers are hard to find, primarily because this business model isn’t as lucrative, but they are out there and worth the search. To locate one in your area, try searching these websites: xyplanningnetwork.com and garrettplanningnetwork.com.

Seeking professional assistance in managing your savings is highly recommended. Start with referrals from trusted sources and thorough background checks to verify credentials. Investment advisers whose business model creates a conflict of interest can potentially lead to suboptimal investment advice. When possible, opt for one who charges flat fees or hourly rates, as that compensation best aligns the adviser’s interests with yours and does not incentivize recommending high-cost solutions. Ultimately, good advisers listen well, provide unbiased advice and offer value that matches their expertise. Taking the time to find a reliable adviser can meaningfully impact your future financial security.

Michael J. Francis, is president of Francis LLC, a registered investment adviser with offices in Minneapolis and Brookfield, Wis. Mike Francis can be reached at michael.francis@francisway.com. The information contained herein is provided for informational purposes only.