The 2024 Comprehensive Guide on How to Find the Right Financial Adviser for You
The financial advisor industry is confusing for consumers, and existing consumer guides on the industry don’t provide sufficient information to enable consumers to make an informed selection of an adviser. This comprehensive guide is for consumers who want to really understand the advisor industry in order to feel confident about their choice of adviser.
Choosing a financial advisor is one of the most important decisions you can make. Our guide shows you the important questions to ask and the history of why you have so many different choices.
Hiring a financial adviser is one of the most important decisions you can make. A good adviser can significantly improve your chances of achieving your financial and life goals. Hiring the wrong financial adviser can result in missed wealth-creating opportunities and higher-than-average investment-related expenses.
Unfortunately, finding the right financial adviser is often challenging. While there have never been more choices in the financial adviser marketplace, it also a very confusing marketplace given the arcane terminology and the variety of business models in the financial advisory industry.
Most of the “How to Financial Adviser” guides on the Internet do not capture this complexity, and this results in consumers not being confident about their choice of finance adviser. The only way to gain confidence is to learn how the industry works.
This is probably the most in-depth overview of the financial advisory industry created for consumers. So if you want a truly comprehensive overview of the financial adviser industry to help you make an informed decision, you have come to the right place.
This guide contains several sections as highlighted in the Table of Contents below:
The first few sections provide a baseline of knowledge about the industry.
Then we’ll move on to a self-evaluation and search process to help you narrow down a list of candidates. While you may tempted to skip ahead and jump to the search section of this guide, I strongly believe that you will be a much better informed consumer by first reading the upfront sections providing an overview of the industry.
I have minimized putting my personal opinions in this post, even though I have some strong opinions, (especially my view that most clients should be working with fee-only RIAs). But I recognize that different clients have different needs, and so I have tried to be unbiased in outlining the choices in the marketplace.
1. Financial Adviser Industry Basics
Hiring a financial adviser is one of the most important decisions you can make. A good adviser that fits with your needs can significantly improve your chances of achieving your financial and life goals. Hiring the wrong financial adviser can result in missed wealth-creating opportunities and higher-than-average investment-related expenses.
Unfortunately, finding the right financial adviser for you is often challenging. While there have never been more choices in the market, it is also a very confusing marketplace given the arcane terminology and variety of business models in the financial adviser industry.
This confusing industry landscape is why it is important for consumers to get a baseline understanding of the industry and how it has evolved over the last several decades. Having this baseline knowledge is the really the only way that you will be able to understand the choices that you have in the marketplace.
This section will proved two very important sets of a baseline knowledge:
An overview of terminology used in the financial adviser industry
A brief history of the evolution of the financial adviser industry over the last few decades
1.a Terminology used the financial advisory industry
It is important to understand some financial industry terminology, because without having some understanding of this terminology, it will be very hard to understand the different ways that advisers provide services in the industry. And without that understanding, it will be hard for you to make an informed choice when selecting a financial adviser.
The key industry terminology to understand is:
Terminology related to how financial advisers are compensated
Terminology related to financial advisory firms
Terminology related to financial advisers (people)
Types of compensation earned by financial advisers
This is a very high-level overview of fees - a more detailed discussion of fees is discussed Section 2 below.
A "commission" is compensation received by a broker or agent from the sale of a financial product or insurance product. Sometimes, as part of trading stocks and bonds, these commissions are directly paid for by investors, although the cost of commissions from trading stocks and bonds is much, much lower than it used to be. In other cases, commissions are baked into the total cost of the products sold (as with insurance products). Insurance products can generally only be sold on a commission basis, and many life insurance products provide commissions to agents for many years as long as the policy is active.
A "load" (which is, in effect, a commission) is an investment expense incurred by the client that is provided to a broker or agent from the sale of or ongoing ownership of a mutual fund. Unlike stock and bond commissions, mutual fund loads can be "front-loaded" (like a commission) or can be an ongoing fee (like an advisory fee). Back-loaded loads used to be prevelant, but are now very rare.
A "fee" or "advisory fee" is compensation paid by the client directly to the adviser for investment management or other financial advisory services. Fees are different from commissions and loads in that (a) the fee is paid directly from the client to the advisory firm and (b) the fee is defined in an advisory agreement contract between the client and the advisory firm.
Terminology related to Financial Advisory Firms
• A "broker-dealer" or "BD" is a financial firm that buys and sells securities and receives commissions when they make trades on behalf of clients. Fifty years ago, almost all firms involved in providing financial advice to consumers were broker-dealers. Now, hardly any financial advisory firms are pure brokers-dealers. Most are hybrid firms (see below).
• An "investment adviser," "registered investment adviser" or "RIA" is a financial advisory firm that provides investment advice or financial planning advice for a fee. Note: an “investment adviser” can also refer to a person (see below in "Types of Financial Advisers"), but an RIA refers only to a firm.
• A "hybrid RIA," "hybrid firm" or "dually-registered firm" is a financial advisory firm that has two different legal entities, an RIA and a broker-dealer. This structure enables these firms to collect both advisory fees and commissions.
• A "Fee-Based firm" generally means a firm that collects both advisory fees and commissions. “Fee-based firms” are almost invariably hybrid firms.
• A "Fee-Only RIA" or "Fee-Only Firm" is a firm whose sole compensation is fees paid by clients. Fee-only firms are by definition always RIAs, but not all RIAs are fee-only firms, because many RIAs are part of a hybrid firm that also receives commissions. In addition, “fee only firms” cannot receive referral fees, money from revenue sharing agreements, and compensation from other similar commercial arrangements.
(Note: while fee-only advisory firms cannot receive referral fees, they can pay fees to third parties for referrals. For example, let’s say that your estate attorney refers you to a financial adviser. That attorney may be receiving a referral fee if you sign up with that. For this reason, If you receive a referral to a financial adviser from another advice professional like an attorney, you should ask the financial adviser if they will be paying the professional who made the referral fee in conjunction with the referral. That may provide information about the financial incentives behind the referral.)
Types of "Financial Advisers"
A financial adviser is often called by many names, but each of the terms has a slightly different meaning, especially among those in the industry.
"Financial adviser" is a catch-all term for all financial professionals who provide advice to individuals and households.
"Broker" is an increasingly antiquated term for a financial adviser. The reason that this term is outdated is that brokers, who in a strict sense are financial advisers who collect revenue solely from commissions, rarely exist anymore, since most advisers these days are "dually registered" (see below). Note: the technical term for a broker is a “registered representative.”
An "investment adviser" (person) is also, in a colloquial sense, somewhat of a catch-all term for a financial adviser; however, "investment adviser representative" or “IAR” is a defined regulatory term that means an individual person that collects a fee for managing investments. Anyone providing investment advice for a fee must be a licensed IAR. Unlike brokers, investment adviser representatives have a fiduciary duty to clients (see below the definition on “fiduciary”). Separately, in a non-legal sense and within the financial advisory field, people who are called "investment advisers" refer to a subset of financial professionals who focus much of their work specifically on investment strategy. For instance, a person in a large firm who works exclusively on creating portfolios for clients would be more appropriately called an investment adviser instead of a financial adviser.
A "dually registered adviser" is someone who is licensed as both a broker and an investment adviser. The tricky part of a dually registered adviser is that this person can wear two hats at different times (often during the same conversation). Sometimes this person can act as an investment adviser and when they act as an investment adviser they have a fiduciary duty to clients. But other times this person acts as a broker and during those times they do NOT have a fiduciary duty to clients (unless they are a CFP® professional - see below).
A "financial planner" is a financial adviser who typically provides "comprehensive financial planning" across all aspects of a client's financial life. So not only will a financial planner provide investment advice, but a planner will also offer advice around life planning, cash flow budgeting, some tax planning, retirement planning, insurance planning, and some high-level estate planning. Most financial advisers who call themselves financial planners are either CFP® professionals or are in the process of the obtaining their CFP® designation.
A "Certified Financial Planner™ professional" is a financial planner who has received the CFP® designation from the Certified Financial Planner Board of Standards, also known as the CFP Board. Importantly, all CFP® professionals have a fiduciary duty to clients at all times, even if they are dually registered advisers.
A "financial coach" has a distinct and valuable set of services for people who have not yet saved a lot of money and primarily need help with budgeting. However, financial coaches generally are not legally allowed to provide investment advice, since most financial coaches are not licensed IARs.
An "insurance agent" sells insurance products, and specifically, in a financial advisory context, life insurance and annuities. Many life insurance agents call themselves a "financial adviser." But unlike most other financial advisers, life insurance agents usually have a very limited set of insurance products that they can offer, namely life insurance and annuities, and if they are "captive" insurance agents, they can only offer the products of the company they work for. Insurance agents, especially those who work directly for insurance companies, often don't have the ability to open a brokerage account or to offer investment products that aren't insurance. In addition, most insurance agents work purely on a commission basis; in other words, they only make money for their firm if you buy the insurance product.
Other important terminology
A "fiduciary" is a person who has a legal obligation to always serve the best interests of its client and cannot put their own interests ahead of the interests of its client. All financial advisers working in an RIA are fiduciaries. (But as noted above, dually registered advisers also sometimes act as brokers and when they act as brokers they are not necessarily acting as a fiduciary.)
“Assets Under Management” or “AUM” is a defined regulatory term that is the amount investment assets that a client has enabled an adviser to manage directly, in return for which the client pays a fee.
So to sum up, here are the key things you need to know:
Brokers work for broker-dealers and earn commissions.
Investment adviser representatives work for registered investment advisers and receive fees.
Most financial advisers in the industry working with household clients are dually registered brokers and investment advisers who earn both fees and commissions.
However, investment advisers who work at fee-only RIAs only receive fees, and people working at these firms act exclusively as fiduciaries. (Note: Quiet Wealth is a fee-only RIA.)
But not all RIAs are fee-only, because some RIAs are part of dually registered firms or hybrid firms that also earn commissions.
Did you get all that? Hopefully you did, but it’s easy to understand why you might still be confused. However, with that baseline of terminology, it will be easier to understand the recent history of the financial adviser industry.
1.b A History of Financial Advice from 1980 to 2024
(Note: Hat tip to financial planning guru Michael Kitces for this historical framework.)
Understanding the timeline of the Financial Advice industry is helps untangle the confusing around what kind of Financial Advisor is best for you.
There is a reason why the market for financial advice is confusing to consumers these days. Today's market includes companies that work under old pricing and service models (which typically were commission-based) as well as companies that work under newer pricing and service models (which are increasingly fee-driven). It's important to understand the context of how we arrived at this jumbled mess of business models.
The Stocks / Commissions Era (1980-1995)
Back in the 1980s, if you wanted a financial adviser, you hired a stockbroker. The stockbroker would put together a portfolio of individual stocks and bonds for you, and every time the broker bought or sold a stock or bond, they would receive a commission. These commissions not only paid for the cost of purchasing and selling securities, but also paid for the "financial advice" that these brokers would typically provide as part of their overall client relationships.
There were a few problems with this business model:
The stockbrokers had a financial incentive to buy and sell stocks, even when it wasn't necessary.
The portfolios of individual stocks and bonds may not have been optimally diversified since they were typically not overseen by a full-time investment manager (and most brokers didn’t have a good understanding of portfolio management strategy).
Finally (and most importantly), the pricing of commissions collapsed as discount brokerages like Charles Schwab and Scottrade entered the market and significantly undercut the pricing power of the large brokerage firms.
By the early 1990s it became clear that the commission model was not going to provide the revenue-generating capacity to enable stockbrokers to continue to offer financial advice beyond buying and selling stocks. Moreover, mutual funds, rather than individual stocks and bonds, increasingly became the preferred type of investment vehicle through which to invest.
The Mutual Fund & ETF / Assets Under Management Era (1995-2020)
In the early 1990s, mutual funds, rather than individual bonds and stocks increasingly became the way that households invested their money - companies like Fidelity, Vanguard and T. Rowe Price benefited from this trend.
Mutual funds are managed by a full-time investment management staff, and this allowed investors to easily get diversified portfolios and to no longer rely on stockbrokers to actively manage their money.
But mutual fund companies, especially in the 1990s and 2000s didn't have the capacity to provide comprehensive financial advice to individuals. So clients still needed a financial adviser to manage their portfolio of funds and to provide other financial advice.
Large financial firms adapted to this new environment by changing their business model. Many firms became "hybrid firms" where they could not only collect commissions like stockbrokers, but they could also serve as an investment adviser, which enabled them to collect an ongoing fee for managing investments. So generally speaking, firms would receive:
Loads (i.e., commissions) on the placement of mutual funds with clients; and
Investment management fees, billed as a percentage of assets under management or AUM basis, for providing comprehensive advice.
To this day, there remain many financial advisory businesses that charge an asset under management fee AND receive commissions from the sale of mutual funds in customer accounts. While these service models are increasingly unattractive to consumers, there are still millions of households who continue to use advisers who are paid both advisory fees and fund loads.
But much as in the Stockbroker Era, the Mutual Fund / AUM business model has recently started to break down due to another industry evolution:
Investor awareness and adoption of low-cost, no-load index funds and ETFs made it more challenging to convince investors that it is was worth paying money to buy mutual funds with loads or expensive funds that actively managed portfolios.
Consumers were increasingly looking to their financial advisers to provide more than investment advice and retirement planning advice and instead offer comprehensive financial planning advice. However, most investment advisers from this era didn't have the capacity, the ability or (in many cases) an interest to offer the comprehensive financial planning advice that customers were increasingly looking for.
The Emerging Financial Planning Era (2020- )
In 1969, a new organization was formed by 13 men (yes, all men…) in Chicago around the idea that financial advice should be more than trading stocks and bonds and instead should integrate knowledge and practices across many different disciplines to create a comprehensive financial plan. That organization eventually became the CFP Board, which sets the standards for professionals with the Certified Financial Planner™ designation, also known as the CFP® designation.
Over the course of decades, the number of CFP® certificants grew at a slow, but steady rate, and by 2006 there were over 50,000 CFP® professionals. However, awareness of the CFP® designation among both advisers and consumers remained very low at that time. Starting in 2011, the CFP Board began an awareness campaign to highlight the importance of financial planning and the value of working with a Certified Financial Planner™.
But even in 2015, awareness of the CFP® designation among consumers remained relatively low. However, the growing move to index funds meant that an increasing number of financial advisers felt the need to evolve the profession, and the way for advisers to evolve was to offer more holistic advice, or "financial planning advice."
This industry evolution appears to be accelerating today. The number of CFP® certificants is now over 95,000, and a few thousand planning-focused firms have been started in the past several years. Moreover, consumers are increasingly looking for financial planners, not investment advisers. But it's important to recognize that as of today, we are still in the early stages of the financial planning era, and most financial advisers do not truly provide comprehensive financial planning advice.
The Role of Technology in the Evolution of Financial Advice
Separately, it is important to highlight the role that the Internet and new financial adviser software applications have played in the evolution of the industry. Back in the 1980s and 1990s, only large firms had the resources to create and manage software to manage client portfolios, and most of this software was created within each firm's IT department.
Fast forward to today: there are now hundreds of independent software companies creating world-class applications for advisers across dozens of product categories. The maturation of these software tools has enabled small, independent advisers to have access to cutting edge analytics and client engagement tools that weren't generally available 15 years ago.
The other important technology development was that of the RIA custodian, which is a brokerage firm that holds client assets. Only broker-dealers can trade securities, so RIAs need to partner with a broker-dealer who provides services to manage investment holdings and transact in the accounts. Fortunately, several broker-dealers have developed a specialized set of custodial services for RIAs. There are currently three leading custodian firms: Schwab, Fidelity and Pershing. SEI is a small but established custodian. In addition, there are several emerging custodian platforms, such as Altruist and Axos.
It is hard to understate how important the emergence of innovative software companies and the availability of respected custodians were for re-invigorating the financial adviser industry. These relatively new tools have enabled not just a new breed of advisers to launch their firms but also new pricing models to emerge. These new pricing models are discussed in the next section.
2. The Ways that Financial Advisers Charge for Services
As discussed earlier, brokers receive commissions, and investment advisers receive fees. Dually registered advisers receive both commissions and fees. The section below goes into more detail of different fee structures available in the market place, especially among independent fee-only RIA firms.
Commissions are a relatively straightforward but often nontransparent way that brokers and insurance agents get paid. When you buy certain investment products, a broker often receives a commission. The size of a commission can vary depending on the type of financial product purchased:
Stocks & ETF commissions: These days, commissions for selling and buying stocks and ETFs are usually quite small and often immaterial, especially for passively-managed portfolios of ETFs.
Bond commissions: Most investors do not buy individual bonds, and although bond commissions are much lower than they were decades ago, but they are still higher than they are for stocks and bonds, and this is because the bond market is less liquid and more complicated than the stock market. The one exception to this is U.S. Treasury market. For U.S. Treasury bonds on major online brokerage platforms, if you submit the order yourself online, the commission for buying or selling U.S. Treasurys is often zero, but even if you get the assistance of a customer service representative, the commission is usually quite small. For instance, Fidelity charges $19.95 for representative-assisted Treasury trades.
Mutual funds: Many hybrid advisers continue to recommend to clients funds with loads in order to earn commissions, and these commissions can be significant. Commissions are usually either a front-loaded with a fee of between 1% to 5%, or have an ongoing charge, which is usually a fee of between 0.25% to 1% per year. The amount of these loads is available by looking in the prospectus of the fund.
Life Insurance and Annuities: Commissions for life insurance policies and annuities can be very large - anywhere from 2-8% of the premium paid. The amount of these commissions is not disclosed, and it is impossible for consumers to know the cost of these commissions. The cost of these commissions is embedded in the terms of the insurance products in the form of less attractive returns and higher fees associated with these products.
An “AUM fee” is a fee pricing model that most RIA firms and hybrid firms use to charge for their investment advisory services. Typically, the fee is around 1% of assets under management, with that percentage often being somewhat higher for smaller accounts and somewhat lower for larger accounts. Most RIA firms (but not all) use an AUM fee schedule to calculate their investment advisory fees.
“Alternative fee models” are a set of emerging RIA fee structures that are different from the traditional AUM fee structure. These alternative structures include:
A “flat fee” is a fixed fee for services. This flat fee is typically either for the delivery of a financial plan or for ongoing financial planning and investment management services. For instance, Quiet Wealth’s fees for households and individuals are primarily flat fees.
An “hourly fee” is a fee that is paid based on the amount of time that an adviser works on behalf of a client. For instance, Quiet Wealth offers services for an hourly fee to former clients.
A “net worth / net income” fee is a fee that is calculated based on a client’s total net worth and / or net income. This helps ensure that a fee is reasonable given the client’s standard of living.
A “planning fee” is a fee that some investment advisers charge for the creation of a financial plan ahead of working with a client on an ongoing basis under either an AUM fee structure or an alternative fee model.
An “ongoing advisory arrangement” is any type of engagement where an adviser provides continuous advisory services. Typically, clients who place assets under management of an adviser enter into an ongoing advisory engagement until the client or the adviser terminate the advisory agreement. However, there are many fee-only advisers who offer ongoing financial planning services without investment management for a fixed monthly or quarterly fee.
A “financial planning engagement” or "project engagement” is a type of engagement where the adviser works with the client to create a financial plan, but once the plan is completed, the engagement is over. In some circumstances, the engagement includes assistance with implementing the plan. Typically, these engagements are priced on a flat fee or hourly fee basis.
An "advice-only” engagement is either an ongoing advisory engagement or a project engagement where the adviser does not manage the investment assets. Instead, an adviser works with clients to implement the investment strategy in their existing investment and retirement accounts. Such engagements are often less expensive; however, the downside is that an adviser is not able to actively monitor a client’s investments. Advice-only engagements are especially popular among clients who have a good amount of investment knowledge and experience.
Illustrative Examples of Selected RIA Fee Structures
Below is a list of illustrative examples of fee structures used by RIA firms and hybrid firms. The most commonplace fee arrangement is one similar to Illustrative Example #1 below. But the other examples below are available from some RIA fims and hybrid firms, especially some fee-only RIAs.
Illustrative Example #1 - AUM (Assets Under Management) Fee
This is how most firms (especially older firms) charge for investment management and financial advisory services:
“XYZ Advisors charges an annual fee based on the amount of average assets under management (”AUM”). The annual fee is equal to the sum of the following and is billed quarterly:”
The first $1,000,000 of AUM: 1.2%
All AUM above $1,000,000 up to $2,000,000: 1.0%
All AUM above $2,000,000 up to $3,000,000: 0.9%
All AUM above $3,000,000: 0.75%”
So for example, let’s say a client had $2,500,000 of average assets under management during a quarter. Here is how the fee would be calculated:
1.2% of the first $1,000,000 = $12,000
1.0% of the second $1,000,000 = $10,000
0.9% of the remaining $500,000 = $4,500
TOTAL ANNUALIZED FEE: $16,500
Divided by 4 (for the quarterly fee)
TOTAL QUARTERLY FEE: $4,125
However, newer firms might charge fees in a manner similar to some of the examples below:
Illustrative Example #2 - Negotiated Flat Fee for Ongoing Financial Planning and Investment Management
“For the provision of ongoing financial planning and investment management services, GHI Financial charges an annual fixed fee of between $5,000 and $20,000 per year. The amount of the fee will be agreed upon by the Client and GHI Financial.”
Under this type of negotiated fee structure, the investment adviser will typically evaluate the client’s situation before offering the proposed fee. Some advisers are willing to negotiate the offered fee; other advisers do not negotiate the offered fee.
Illustrative Example #3 - Flat Fee / Retainer Fee for Ongoing Financial Planning and Investment Management
“For the provision of ongoing financial planning and investment management services, QRS Wealth charges an annual fixed fee of $10,000 per household for clients with up to $3,000,000 of assets under management.”
Under this arrangement, moderately wealthy households are charged a fixed fee, but there will typically be flexibility for the financial adviser to charge higher fees for very wealthy clients because these households usually have more complex advisory needs.
Illustrative Example #4 - Hourly Fee for Financial Planning Services
“For the provision of financial planning services, the fee is $300 per hour.”
Under this type of fee structure, the default arrangement is for the client to be charged an hourly rate based on the amount of time it takes the adviser to perform the work. Typically, an adviser will provide a client an estimate of the total cost for an engagement. Note: one downside of this type of arrangement is that many clients feel reluctant reaching out to an adviser with a question because they don’t want to be charged time for getting some quick advice. This is an example of where you need to watch out how the incentives of the fee structure may negatively impact your behavior but discouraging you from seeking advice.
Illustrative Example #5 - Negotiated Fixed Fee for a Advice-Only Financial Plan
“For the provision of the Financial Planning Project service, the fee is between $3,000 and $7,000.”
Under this type of fee structure, the client will pay a fixed fee for the creation of a financial plan, but the actual price will depend on the complexity of the financial advice. The fee will be mutually agreed upon between the client and the adviser.
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These examples represent just a small sample of how RIAs structure their fees. Especially among smaller and newer firms, there can be a wide variation in how firms structure their fees.
3. The Types of Financial Adviser Firms in the Marketplace
With an understanding of industry terminology, the history of the advisory business and how advisers get compensated, it should now be somewhat easier to understand the different types of financial advisers in the marketplace today.
There are three key dimensions to understand for each class of advisers in the marketplace
The type of firm providing the services
The pricing model they use to generate revenue
Firm philosophy: investment-centric vs. planning-centric. At a high level, here are the differences between these philosophies:
“Investment-centric” firms tend to focus on providing investment advice and retirement planning advice. These advisers often have an “active management” philosophy of trying to “beat the market.”
“Planning-centric” firms provide advice across all aspects of clients’ financial lives. On the investment side, these firms often (but not always) employ passive investment strategies that use low-cost, index funds. These advisers spend more time working with clients to understand their goals, manage their budget, and implement an agreed-upon financial and investment plan.
1) "Big Brand" Banks and Financial Adviser firms
This group of companies includes several sub-classes of companies, all of which generally operate under the same business model.
a. Large Wall Street Brokerages: Merrill Lynch, Morgan Stanley, JP Morgan
b. Investment Advisory Arms of Commercial Banks: e.g., Chase / JP Morgan, PNC Private Bank, Wells Fargo Advisors. Pretty much every large commercial bank these days has a financial adviser in the branch willing to sell investment advisory services to you.
c. Discount Brokers who also provide full-service advice - e.g., Charles Schwab, Fidelity, E-Trade. While there are many self-managed accounts at these companies, there are also millions of accounts that are managed by a financial adviser at these companies. In fact, a large part of the business model of these firms is to provide low-cost brokerage service in the hope that some of these customers eventually turn into fee-paying clients.
d. Branded Main Street Financial Advisers - e.g., Edward Jones, Ameriprise, Fisher Investments.
Philosophy: Most (but not all) of these firms have an investment-centric service philosophy. Only a few offer financial planning advice.
Pricing model: All of these entities generally (but not always) have the same business model:
The compensation received is a combination of investment advisory fees paid by clients and (almost always) commissions received from the sale of in-house and third-party financial products.
The investment advisory fee is almost always structured as a percentage of assets under management, or "AUM."
The adviser may have an incentive to sell certain financial products because of a commission.
Some of these entities own or partner with life insurance brokerages that enable these firms to also offer insurance products, for which the adviser may receive an additional commission.
An important note on these firms is that almost none of these firms will provide investment advice on your 401(k)s or other retirement assets.
2) Life Insurance Companies and Agents
Many life insurance agents call themselves “financial advisers.” This is true because insurance agents offer some products which kind of act like investments, especially variable or index-linked life insurance and annuities. But most insurance agents are limited to offering only insurance products. And relative to more traditional investment accounts, insurance-based investment products tend to be significantly more expensive.
Pricing: All Life Insurance companies and life insurance brokers have the same business model: The compensation received by agents is commissions, and those commissions are baked into the overall cost of the product. In addition, many life insurance and annuity products have additional fees, especially “variable” products.
The ongoing charges for life insurance and annuities can be extremely expensive relative to what other firms charge to manage money. For instance it is not uncommon for variable annuities without any riders to charge 1.5% of the current value, and that is before additional features, or riders, which are typically added on to insurance contracts. These additional riders result in additional fees. Investment options through life insurance and annuity products, especially index investment fund options, are almost always more expensive than similar investments available through a mutual fund or ETF.
Philosophy: Insurance agents can be either “planning-centric” or “investment-centric.” But insurance agents often have a mindset focused on “protecting against downside scenarios,” because that is what insurance products are typically best for. Relative to other investment products, insurance products are almost always inferior in helping investors build wealth. In addition, if an insurance agent works directly for a life insurance company, they are "captive" agents, and they can only offer the products of the insurance carrier that they work for. Essentially, think of insurance agents as financial advisers who have a very limited set of tools in their toolkit. For many insurance agents, every problem can be solved by insurance, because that is often the only product they have available to offer.
3) Small to midsized RIAs or hybrid advisory firms backed by a large platform / aggregator
There are many small-to-midsized financial advisory firms who seem to be independent firms but are in fact subsidiaries of larger financial entities. These firms have their own website, but legally speaking they are a “dba” or “doing business as,” which means that despite the distinct website, the firm is overseen by a larger parent company. This trend of “smaller firms being part of larger firms” has been accelerating recently, as larger firms have acquired thousands of small, profitable practices over the last several years.
These organizations can be either hybrid firms or RIA firms.
Some of the better-known “Aggregator Hybrid Firm” platform firms include:
LPL
Cetera
Osaic
In addition, many large Wall Street firms such as Merrill Lynch, Morgan Stanley and UBS offer to be the platform of boutique practices.
Some of the better-known “Aggregator RIA Firm” platform firms include:
Carson Group
Mariner Wealth Advisors
LPL also offers an “RIA-only” platform
There is an easy way to recognize whether a small firm is part of larger platform. If you look at the disclosures section of a firm’s website, there will be some sort of language in the disclosure section that notes the actual corporate entity providing the advisory services. For truly independent firms, the name of the firm listed in the disclosure section will be the same as the firm name on the website. But for firms that are part of a platform, the name of the platform company will be the company in the disclosure section:
Here is an example of one small RIA firm’s disclosure of its parent’s entity (in this case, Carson Wealth):
“Investment advisory services offered through CWM, LLC, an SEC Registered Investment Adviser.”
Meanwhile here is an example of hybrid firm’s disclosure (a boutique firm affiliated with UBS):
“As a firm providing wealth management services to clients, UBS Financial Services Inc. offers investment advisory services in its capacity as an SEC-registered investment adviser and brokerage services in its capacity as an SEC-registered broker-dealer. Investment advisory services and brokerage services are separate and distinct, differ in material ways and are governed by different laws and separate arrangements.”
Pricing: Most of these firms earn their fees under an Assets Under Management arrangement. Hybrid firms earn commissions as well, but how much of role commissions plays in a particular firm’s business model depends very much on the firm and the parent company. There are some hybrid firms that still heavily depend on commissions in their business model.
Philosophy: How these small-to-midsize entities work in practice can vary a lot!
Some of these firms are fiercely independent, and while they are technically part of a larger firm, they have wide latitude in how they provide services to clients, and they only are part of a larger firm in order to gain scale efficiencies.
Other firms are much more of a “branch office” of the larger platform company and for the most part need to stay aligned with the practices and offerings as mandated by the parent company.
Because the level of independence that these firms have can vary, it is important to ask specific questions about how the parent company compensates the professionals at the small firm and to what extent the parent company limits the investment strategies or types of advice offered to clients. You need to ask tough questions to advisers working at these aggregator firms to really understand their business model.
4) Independent fee-only RIAs
Independent fee-only RIAs are a large, diverse set of advisory firms. The common theme among all of them: they are “fee-only,” which means that they do not receive commissions or other third-party payments. That minimizes the potential for financial conflicts of interest between the firm and its clients.
Broadly speaking, there are four types of independent fee-only RIAs:
“High Net Worth” Large RIA firms serving clients with more than $1,000,000 of investments.
“Mass Market” Large RIA firms willing to serve clients with less than $1,000,000 of investments (examples of some very large firms include Financial Engines, Facet Wealth, Ellevest)
Midsized RIAs with (10-50 advisers)
Small RIAs (less than 10 advisers)
Below is an overview of each of these types of firms
High Net Worth Large Fee-Only RIA firms focus on wealthy clients. They typically provide a comprehensive set of services and are backed up by teams who provide specialized advice that these clients need. High Net Worth Large RIAs usually (but not always) use active management investment strategies, as they are usually staffed with full-time investment managers who seek investment opportunities that potentially offer excess returns. These firms often have higher fees than other types of fee-only RIAs. Almost invariably, these firms charge on an "assets under management” basis, and their fees as a percentage of assets under management are often a bit higher than those of smaller RIAs. Essentially, think of these firms as generally offering a premium service for a premium price, but for particularly wealthy families with several million dollars of net worth, this can be a price worth paying.
Mass Market Fee-Only RIA firms are large firms who focus on modestly wealthy clients. They usually provide two sets of services: investment management services and financial planning services. How these services are priced varies, but typically investment management services are relatively affordable, and financial planning services are either a separate service or a premium add-on offering to their core investment service. Clients of these services often receive a limited amount of time to spend with their financial planner, and the financial planner is often serving many clients (usually at least 100 clients per adviser). This helps keep the service affordable but it can affect service quality.
Midsized Fee-Only RIA firms are firms who have teams of advisers to serve clients. Quite often, an engagement team consists of a lead adviser, an associate adviser, and sometimes a client support assistant. In addition, many of these firms usually have a couple of individuals who focus specifically on investment strategy. Almost invariably, these firms structure their fees on an assets-under-management basis.
Small Fee-Only RIA firms are boutique firms consisting of 1-10 advisers. Relative to other types of RIA firms, a higher proportion of small firms focus on financial planning as part of their advisory services. They also generally provide clients more access to senior advisory personnel. Many small firms cater to a small niche of clients who have unique advisory needs. While the majority of small RIAs use a traditional asset-under-management fee structure, some firms have adopted alternative fee structures, such as:
• Charging an upfront fee for the creation of a financial plan.
• Charging a flat fee for ongoing advice and investment management.
• Providing ongoing financial planning advice without investment management for a flat fee.
• Charging a fee based on the annual income and / or net worth of a client.
• Charging on an hourly basis.
Philosophy: There is a mix of investment-centric and planning-centric firms among independent fee-only RIA firms, but there is a higher proportion of planning-centric firms among small independent fee-only RIAs. It is important to understand the engagement philosophy and investment approach of any small fee-only RIA when evaluating whether a firm is a fit for your situation.
The Special Case of Fee-Based RIAs for Life and Disability Insurance Only
As discussed before, fee-only do not accept commissions, and fee-based RIAs do collect commissions. Most planning-centric fee-only small RIAs feel it is important to not accept commissions, because commissions can create the perception of a conflict of interest between the financial adviser and the client.
In almost every part of an advisory engagement, this restriction on collecting commissions does not have any effect on the service they provide, and it can affect how they provide advice in one planning area: insurance.
Quite often in planning-centric advisory engagements, a need for additional life insurance or disability insurance is identified. Unfortunately, it is generally illegal to sell insurance without the insurance agent receiving a commission. Because fee-only RIAs cannot accept commissions, they cannot be an insurance agent, because in order to be an insurance agent you must accept commissions.
Consequently, for implementing life insurance plan, fee-only RIAs generally take one of two approaches:
- They partner with an insurance agent who works exclusively with financial advisory firms to service clients who have insurance needs.
- They request that clients get life insurance quotes on their own.
However, there are some small planning-centric RIA firms that are fee-based (i.e., they accept commissions) because they strongly believe that the advisory firms should not outsource the underwriting of life and disability insurance as an integrated part of the practice. These firms are generally led by CFP® professionals who have fiduciary duty to clients. However, they have insurance agencies through which to offer life insurance in order to provide a comprehensive solution to clients. Because these affiliated insurance agencies collect commissions, these RIAs are part of a “hybrid firm,” and consequently, these are “fee-based firms,” not "fee-only firms."
There is a debate among small planning-centric RIAs on whether adding an insurance agency arm is a wise approach. As planning generalists, most RIAs do not have the experience that full-time insurance agents have in helping clients go through underwriting, and experience can be particularly helpful when underwriting may be challenging due to health or other factors. Another reason that most small RIAs choose to not offer insurance directly through their own insurance agency is that doing so would prevent them from being "fee-only," and that could introduce doubt among clients as to potential conflicts of interest between the adviser and the client.
Fee-based firms with attached life insurance agencies counter that having an insurance agency in-house helps ensure that the insurance gets in place, and it simplifies the process for the client. These fee-based firms also note that clients trust them to do the right thing.
As the owner of a fee-only firm, I tend to believe in the fee-only approach, because I don't want clients to think that a commission is going to affect my recommendation. In fact, I have been asked by clients if I get any commissions, and when I tell them I do not, it significantly increases the confidence in my advice. But I can also see the point of view of fee-based firms. It will be interesting to see if firms who take this "fee-based for insurance only" will continue to gain traction in the marketplace.
5) Financial advisory practices within an accounting firm
A growing number of accounting firms are creating affiliated advisory entities that provide financial and investment advice. For regulatory and compliance reasons, the accounting firm and the financial advisory firm are separate entities. But practically speaking, the accounting firm and financial advisory firm provide an integrated experience to clients.
This integration can have significant benefits, especially for business owner clients who own meaningfully-sized businesses. This is because tax planning is very important for many business owner clients.
However, prospective clients of these financial advisory practices need to be very aware of the practices of the financial advisory arm of the practice. Sometimes, these financial advisory practices are a sub-entity of a “hybrid firm platform” or “RIA platform,” and sometimes they are an independent RIA. The way that accounting firm-affiliated financial advisory firms charge for their services can vary significantly. In addition, it is important to understand that if you commit to both a tax practice and a financial adviser who are affiliated with each other, it can be difficult to move your relationship elsewhere if problems should arise in the future. Also beware that some of these advisory practices are merely life insurance agencies that only offer a small array of life insurance products and traditional mutual funds and are not RIAs.
If you are considering using an accounting firm to provide investment services to you, make sure that the investment advisory arm is a fee-only RIA, and not a broker-dealer or insurance affiliated entity, and it is also strongly encouraged to only work with firms that have a CFP® professional providing the advice.
Pricing: Most financial advisory practices within accounting firms collect a fee based on assets under management, or “AUM.” Practices that also offer insurance products also receive commissions on these products, and they may earn commissions on the sale of mutual funds.
Philosophy: Many financial advisory practices within accounting firms tend to be planning-centric, with a special focus on tax planning (for obvious reasons). The investment philosophies of these firms can vary…some firms have active-management investment while others employ passive investment management strategies.
6) Robo-Advisers and Low-Touch Investment Management Service Providers
A robo-adviser is an automated investment service that invests money in low-cost portfolios.
Robo-advisers invest in diversified portfolios of ETFs across multiple asset classes. These portfolios are optimized to provide the best expected returns given a client’s risk tolerance. Robo-advisers also typically use tax loss harvesting techniques to minimize taxable gains and income in taxable accounts.
Robo-advisers can be a decent choice if you have a relatively modest level of wealth or most of your money is in IRAs and you don’t need to touch it until retirement. I don’t always agree with all of the robo-advisers’ portfolio recommendations, but usually the recommended portfolios seem ok. However, robo-advisers only provide investment management services. Robo-adviser services do not include any comprehensive planning advice, although a couple of robo-advisers do offer “lite” financial planning services separately.
In addition, it can be complicated for many people to set up robo-adviser portfolios correctly when they have a substantial amount of money outside of the robo-adviser account. For instance, many working-aged Americans have significant assets in employer 401(k)s, 403(b) and 457 accounts. Most robo-adviser services are unable to create appropriate account portfolios given the portfolio characteristics of money held inside employer retirement accounts.
One major risk with some robo-advisers is being unable to transfer assets out of the robo-adviser without triggering a capital gain; this issue especially applies to non-IRA accounts, as highlighted in the below example.
Let’s say that you signed up with a robo-adviser five years ago. In that time the account has grown by 50%.
But now you want to transfer that account over to an account that you or a financial adviser manages because your personal situation has gotten complicated.
Some robo-advisers allow you to transfer the underlying holdings in your robo-adviser account directly into your new account without selling the holdings. That’s good, because now you won’t pay any capital gains taxes with that transfer.
But other robo-advisers force you to “cash out” the account to move your money, and that’s bad, because that means that you have to pay taxes on the 50% gain.
For this reason, it is very important to understand whether you will be “stuck” inside a robo-adviser because of the potential for a large tax liability if you take the money out. For instance, Fidelity’s robo-adviser service, Fidelity Go, invests in proprietary Fidelity funds that cannot be transferred outside of Fidelity. Therefore, there is no way leave Fidelity Go and move your account outside of Fidelity without incurring a capital gains tax if there is an unrealized gain.
Pricing: Almost all robo-advisers charge on an AUM basis. Typically, the AUM charge is between 0.25%-0.35%, but sometimes there are minimum fees.
Philosophy: Robo-advisers only offer investment advice. A couple of robo-advisers offer financial planning as a separate service.
This was a lot of industry information to digest. And you may need to refer back to it in the coming days and weeks as you reach out to potential financial advisers. But having this knowledge will make you smarter than 95% of consumers who are looking for a financial adviser.
And with this industry background, you can ask yourself several questions about what type of adviser you want to work with. That is the subject of the next section in this post.
4. Eight Questions to Ask Yourself Before Starting Your Search for a Financial Adviser
Before starting any kind of search for a financial adviser, there are eight questions to ask yourself that will help narrow the search for a financial adviser. The below graphic
Question #1: What is Your Financial Situation?
As a general rule, there are four class of financial advisers in the marketplace, each of whom focus on a specific niche.
Credit Counselors are for people who:
are heavily in debt; and
feel hopeless that they cannot get out of debt given their situation.
Credit counselors can work with clients in this situation to come up with a plan to repay their debts over time.
Financial Coaches are for people who:
have no debt or a manageable amount of debt;
but are struggling to save; and
need help creating and sticking to a budget.
Most financial coaches generally aren’t licensed to provide investment advice, so if you have some meaningful savings in an investment account or retirement account, it’s likely best to hire a financial planner instead (see below).
Financial Planners / Financial Advisers are generally for people who:
have between $100,000 to $1,500,000 of savings
are currently saving at least some amount of money in retirement accounts if currently working; and
often need to create long-term financial plan to help them achieve life goals and know that they will have sufficient money in retirement.
Wealth Managers are generally for people who:
have at least $1,500,000 of savings OR have mutil-million dollar wealth tied up in business or real estate ventures
are on track for eventually having at least $2-3 million dollars of savings at some point
are likely not at risk of running out of money in retirement, as long as spending remains under control
have significant ongoing tax planning and estate planning issues to manage
Question #2: Do you want a financial adviser who works at a large firm, large insurance company or with your bank?
Many households feel more comfortable working with a larger financial institution for several reasons:
The client already has a relationship with the institution. For instance, a client may have a checking account at a bank and wants to receive financial advisory services through an investment advisory arm of the bank.
Larger institutions are often perceived as bigger and safer (though this isn’t necessarily true).
However, there are several downsides with working for a big brand advisory firm or the investing arm of a bank. Here are the some usual disadvantages from working with large firms or banks:
All-in investment and advisory costs are often higher at larger firms than smaller firms, especially if the firm both receives fees and earns commissions. It is important to truly understand the “all-in” costs of working with these firms and the all-in costs of the underlying investments.
Insurance company commissions in particular can be very high, and there can be a significant financial cost from selling insurance-company products prior to the end of a surrender fee period.
They may only offer "investment advice" and may not be able to offer you "comprehensive financial advice."
Big brand firms generally don’t provide “advice-only” engagements, so they tend to be a poor fit for “Validator”-type clients (as discussed above).
They generally don’t have offer niche specializations (except for the most wealthy clients).
If you aren’t averse to hiring a smaller firm, you gain access to advisers who may focus on people such as yourself and who offer a variety of different fee models that may suit your needs better than what the large firms offer. I strongly recommend that all potential advisory clients at least consider a smaller firm these days, because many of them can offer a superior service more aligned with your needs.
Question #3: Do you want your adviser to provide a comprehensive investment strategy across both your regular brokerage accounts and your employers’ retirement accounts?
Since the emergence of 401(k) plans, 403(b) plans, the federal TSP program and other employer deferred compensation plans in the 1980s, the proportion of Americans’ wealth in employer retirement plans has grown substantially. In fact, a 2022 survey of high net worth investors conducted by Morning Consult on behalf of Personal Capital / Empower showed that over half of these investors’ assets are in retirement plans.
Given that a large amount of high net worth investors’ money is in employer retirement funds, clients in this situation need a comprehensive investment strategy across their traditional investment accounts and their employer retirement plans. Failing to provide a comprehensive investment strategy will likely result in asset allocation that is misaligned with the client’s goals and risk tolerance.
Now here’s the issue: many firms, especially large firms and investment-centric firms, will not provide advice on the assets in your retirement funds as part of their investment advisory service. Why? Because these assets are not under their management, and therefore these firms are either unable or unwilling to provide advice on clients’ investments in company retirement accounts.
However, many fee-only independent RIA firms such as Quiet Wealth do provide advice on investments in both clients’ employer retirement accounts and their brokerage accounts. If getting advice across all your accounts is important for you, it is likely that you will want to work with an independent RIA.
Question #4: Do you want an "investment-focused" adviser or a "financial planning-focused" adviser?
Most of my clients come to me because they are trying to answer questions about the financial and life goals, and they want to make sure that all aspects of their financial life, including how they spend money, how they invest money and how they can achieve important life milestones. In other words, these clients are looking for a comprehensive financial plan. This is what Quiet Wealth does, as well as many other planning-focused RIA firms.
But there are some households who do NOT want comprehensive financial planning advice. They only want investment advice and want to receive either (i) a one-time review of their investment portfolio and retirement plan or (ii) ongoing management of their investment portfolio. Such clients are usually better served by investment-centric hybrid firms, advice-only or investment-centric RIAs or robo-advisers.
Question #5: Are you a "validator" or "delegator" type of client?
Financial planning guru Michael Kitces believes that there are generally two types of clients:
• Delegators
• Validators
Delagators want their savings to be managed on an ongoing basis by their financial adviser. Traditionally, the only way to work with a financial adviser was as a "delegator." Many clients like the fact that someone is always looking over their money and that they can call them at any time to get help with issues as they crop up.
Validators are comfortable managing their own money, but need help ensuring their investments properly invested. They may also need help validating the feasibility of long-term life plans, answering questions like, "I know I can retire at age 65, but will I be able to retire at age 60?" or “How can I minimize taxes over my lifetime?” Validators don't need to have their assets managed on an ongoing basis, but they do need investment and financial planning advice.
That is why many newer firms offer different services for each of these client types. Quiet Wealth, for instance, offers:
For Delegators: Quiet Wealth offers an "Ongoing Advisory Service" that provides ongoing financial planning and investment management.
For Validators: Quiet Wealth offers a "Financial Planning Project” which is a nine-month engagement that enables clients to clients to develop and implement a financial and investment plan, but does not include ongoing investment management.
Question #6: Do you want your adviser to "beat the market" or "to put you in an appropriate portfolio primarily consisting of low-cost investment funds?"
When it comes to investments, there are essentially two types of clients.
Those who want the adviser to “beat the market.”
Those clients who believe that it’s hard to beat the market and would prefer to have their assets primarily invested in low-cost index funds.
Quiet Wealth strongly believes that it is very hard to beat the market over time through stock picking. This is why Quiet Wealth believes that it is better for clients to generally be invested in a portfolio of index funds across different asset classes. Quiet Wealth sees its investment planning value in aligning the investment portfolio with the overall financial plan for the client.
However, some clients really just want their adviser to try to beat the stock market. There are many financial advisers in the marketplace who offer these services.
Question #7: Do you have a personal situation where you would benefit from working with a specialized adviser?
Until recently, this trend of specialist practitioners hadn’t happened in the financial advisory field, as most financial advisers worked with all types of clients without focusing on a specific set of client problems. For instance, surgeons have a specific set of life and financial situations, such as having lots of student debt and making very little early for the first decade of their career but then making lots of money later in their career.
That is why there are now many practices who focus specifically on surgeons, who understand their situation. For instance, Quiet Wealth focuses specifically on LGBTQ households, because these households often have some unique planning considerations around family planning, domestic arrangements and estate planning.
Many firms also focus on life stages. Quiet Wealth typically works with late-career, pre-retirement professionals and early retirees, because these clients typically have complex financial planning needs at that time. Other firms focus on young professionals or older retirees.
Question #8: Do you want to meet with your adviser in person?
Five years ago, the only way to meet with your financial adviser was in person. To do so, you would generally go into the adviser’s office and meet with them.
Things have changed a lot in the last five years. One lasting effect of the COVID pandemic was the mass adoption of video-conferencing platforms like Zoom and Google Meet. And there have been few industries that have been affected more by this technology adoption than the financial advisory industry. The adoption of videoconferencing tools among financial advisory firms has enabled a few evolutions:
Clients can engage in deep conversations with their advisers without needing to go into the adviser’s office.
Clients can more easily collaborative with clients without going into the adviser’s office.
Clients are now able to work with an adviser from anywhere in the country.
Essentially, videoconferencing has enabled clients to enter into deeper relationships with their advisers by eliminating the friction associated with the need to drive to the adviser’s office. And videoconferencing has enabled client to gain access to thousands of more advisers that they previously couldn’t work with.
But with that said…some households really do want to meet with an adviser face-to-face, and so if this is important to you, you will have to limit yourself to advisers in your region who have an office.
5. Financial Adviser Directories and Search Tools for Finding Potential Firms
Finding a decent financial adviser is relatively easy. But finding the perfect adviser for you requires hard work.
And the difference between finding a so-so adviser and a great adviser could be significant in terms of the positive impact it has on your finances and the confidence you have in your financial future.
For that reason, you should plan on putting as much effort into finding a financial adviser as you would in searching for your first home to buy. It’s that important of a decision.
You should put as much effort into finding a financial adviser as you would in searching for your first home to buy. It is that important of a decision.
After reading the previous sections in this post, you should have some decent knowledge of the types of advisers in the marketplace. And you have a good idea about the types of things you’re looking for in an adviser.
This post will provide an overview of online tools to help you narrow down your search.
The SEC “Adviser Info” Website
Let’s start with the most comprehensive and yet least useful directory of financial advisers that is available, which is the SEC’s Investment Adviser Public Disclosure (“IAPD”) website. This is an online database of all RIA firms and investment adviser representatives in the United States. The SEC is the federal regulator of RIA firms and investment adviser representatives, but it also maintains the registry of federally-registered and state-registered firms and individuals in the same database.
The good thing about this directory is that every investment adviser is going to be listed in this directory. The downside is that at least 90% of the firms in this directory are not going to be a fit for your situation, and there is no information available on the SEC website to help narrow your search.
Just as an example to show how useless the SEC IAPD website is for narrowing your search, I did a search for advisory firms in a large suburb a few miles away from where I live. The search returned 616 firms just in one zip code. And besides location, there is no other way to tailor your search. And keep in mind that this was 616 firms in one zip code! Obviously if you’re searching for an adviser in a local area, you’re going to want to search in multiple zip codes, and the number of firms across multiple zip codes in a large metropolitan region could be thousands.
Moreover, most of the firms in this directory may not interface at all with retail clients, or they may simply be a firm that does proprietary investing for ultra wealthy clients. But it is impossible to understand what the firm does simply from looking at the SEC directory listing.
So in terms of narrowing down your search, the SEC website is pretty useless. Where the SEC’s website can be helpful is at the end of your search process. Once you have narrowed down your list down to 3-5 potential advisers, it is worth doing research on the SEC website to determine if any complaints had been made on the adviser or the adviser’s firm. This information is easily accessible on the IAPD website.
SEC IAPD Advantages
Most comprehensive listing of advisers
Has disclosure information on complaints and regulatory sanctions
SEC IAPD Disadvantages
No information about the adviser other than name and address
No useful search tools
The CFP Board’s “Find a CFP® Professional” website
The CFP Board’s Find a CFP® Professional is probably the most comprehensive, yet somewhat useful search tool for consumers seeking advisers. There are close to 70,000 CFP® professionals listed in this directory.
The CFP Board tool is particularly useful if you are looking for a planning-centric adviser who lives near you.
The directory provides some useful basic search parameters such as:
Searching by distance from a zip code
Searching by “Planning Services Needed” - this search function, as implemented in the CFP Board, is not that useful as it could be, because most of the advisers in the directory say that they can provide most of the core services.
Searching by “Client Focus” - this feature is somewhat helpful, because advisers listed in the directory are being specific about the type of client situations and client demographics that they work with.
Searching by amount of investable assets - beware: this search filter is mislabeled, because it will probably exclude many advisers who could be a good fit for you. Why is this? Because advisers are stating the minimum amount of investable assets that they’re willing to manage, but doesn’t necessary mean that they’re willing to manage more. For example, an adviser could say in the database that the minimum that they are willing to manage is $100,000. But let’s say that you have $1,000,000. That $100,000 minimum adviser could be a perfect fit for you. But if you click on the $1,000,000 filter option, that $100,000 minimum adviser won’t show up in your search results. Therefore, my recommendation is to not use the “search by investable assets” filter.
A couple of missing features from this directory are:
Special situation planning - such as dependent with special needs planning, or financial planning for business owners.
A broader selection of target-demographic search term choices.
Differentiation between fee-based and fee-only advisers. (The Find a CFP® Professional tool includes both fee-based and fee-only advisers, but there is no way to tell whether an advisor is fee-based or fee-only in the directory listing.)
That being said, CFP® professionals are a small minority of all retail-facing investment advisers in the country. The total number of investment adviser representatives is about 350,000. And in particular, most financial advisers at the largest financial institutions, like banks and large brokerage firms, do not have the CFP® designation and therefore are not listed in either this directory or some of the directories below. In addition, very few investment-centric advisers have the CFP® designation (because by definition, they are not planning-centric advisers).
NAPFA Find an Advisor Tool
The National Association of Personal Financial Advisers (or “NAPFA”) is a trade of association of fee-only financial advisers. NAPFA firms are a mix of investment-centric and planning-centric advisors. (Disclosure: Lindsey Young of Quiet Wealth is a member of NAPFA.)
The only real benefit of NAPFA Find an Adviser tools is that it is probably the most comprehensive directory that is exclusively composed of fee-only advisers. So if you are looking for a local fee-only adviser in your area, it is probably the best tool to find an adviser near you.
Unfortunately, the NAPFA search tools are relatively poor.. You can only search by zip code, and for most advisers in the directory, the website provides little information about the member firm other than the location and the website. (A few advisers do list specialties as part of their NAPFA profile.) That is why if you are looking for a fee-only adviser, you should strongly consider also searching via the XY Planning Network and Fee-Only Network tools (see below).
XY Planning Network “Find an Advisor” Tool
XY Planning Network (or “XYPN”) is a network of small independent fee-only RIAs. Most of the advisers in XYPN have a planning-centric philosophy. A majority of the firms are solo advisers, and and almost all of the firms have fewer than five advisers. (Disclosure: Quiet Wealth is a member of XY Planning Network.) A directory listing is a benefit of XY Planning Network membership, which is a service paid for by advisory firms.
As of January 2024, there were a little under 1,000 advisers listed in the XYPN Find an Advisor directory. All advisers listed in the XYPN directory are CFP® professionals.
XYPN’s Find An Advisor tool is ideal if you are interested in working with fee-only advisers and are wiling to work with smaller advisory firms.
One of the key strengths of XYPN’s Find an Advisor tool is that XYPN forces listed advisers to only pick only a few targeted client profiles / planning needs. That means that if an adviser focus on a particular planning need and client demographic when you conduct a search, it is quite likely that they indeed focus on that planning need / demographic. This helps you narrow your search to advisers who can be especially insightful for your situation.
Private Directories: Fee-Only Network & Wealthtender
There are a few privately-operated financial adviser directories. The business model for these adviser directory websites is very simple: the advisers listed in these directors pay a monthly fee for a listing in the directory, much like the Yellow Pages back when the Yellow Pages existed.
With that said, these directories provide a useful service for consumers by providing more in-depth information within the directory than most of the industry association directories do. That allows consumers to quickly understand the adviser’s capabilities and determine if they may fit with the consumer’s financial situation.
I’ll highlight two directories in particular: Wealthtender and Fee-Only Network. (Disclosure: Quiet Wealth lists itself in both of these directories.)
Fee-Only Network (link: https://www.feeonlynetwork.com/) is a large database of fee-only advisers. As of 2024, there are about 3,000 advisers in the database. Fee-Only Network also provides detailed profiles of members in the network. Unfortunately, the search tools within Fee-Only Network are limited, and you really are only able to search by name or zip code. Fee-Only Network is nonetheless a very good alternative to the NAPFA Find an Advisor tool if you are are looking to retain a fee-only adviser.
Wealthtender (link: https://wealthtender.com/financial-advisors/) is one of the better functioning adviser directories on the Internet. This directory enables you fairly advanced searches to find the adviser right for you. The only downside is that the Wealthtender directory only has several hundred advisers in its directory as of early 2024.
Specialty “Alternative Fee Model” Fee-Only Adviser Directories
As mentioned in Part 2, new types of fee structures have been emerging in the independent fee-only RIA space. While most advisers base their fee on assets under management, a growing number of advisers are electing to choose different business models. If your The following two directories focus on two of these business models:
The Advice-Only Network (link: https://adviceonlynetwork.com/#advisors) is a directory of advisers who do not provide investment management services. Advice-Only Network is an ideal tool for consumers looking for advisers who do not manage investment assets. The advisers in the Advice-Only Network specialize in working with clients looking on an “advice only” without investment management. Some of the advisers charge a monthly fee while other advisers do a one-time financial planning engagement.)
The Flat Fee Advisers directory (link: https://www.flatfeeadvisors.org/) provides a list of advisers who provide investment management services for a flat fee, instead of basing their fee on assets under management. Relative to the AUM fee model, the flat-fee model can be extremely cost-effective for wealthier households who have over a million dollars of investable assets for the adviser to manage.
Unfortunately, there is no search functionality for both these directories, but there are currently a very small number of members in each directory. If you looking for an adviser who offers an alternative to the AUM fee model, these directories can be very useful, especially because very few other directories have revenue model as a search term.
In some cases, Google can be an effective tool in helping you find an advisory firm. This is especially true if you are searching for an adviser that focuses their practice on particular professions, identities of life situation.
As an example, there are many advisers who focus on serving doctors. In this circumstance an effective Google search might be:
“financial adviser in Denver serving doctors”
This is the result from that search:
The first result is a website dedicated to providing financial advice to doctors.
The next two results are financial advisory firms in Denver that focus on serving doctors
The next two results are also financial advisory firms serving doctors, but these aren’t based in Denver.
As you can see, Google generated some pretty decent search results when narrowed search was submitted.
There are two keys to being successful in using Google:
Be fairly specific in the search terms that you use, especially around location if you want a local adviser.
Don’t just look at the top 10 results. Instead look through the top 100 results. Why? Because there are a lot of hidden gems below the top 10 results. But below the top 100 results, the quality definitely goes downhill.
With that said, you should not exclusively rely on Google for search results, and I say this as the owner of a firm that currently does pretty in regards to search ranking. There are many below-the-radar firms that provide excellent services, and that is why you should also use the adviser directories noted above to find firms that meet your needs.
Referral Services such as Zoe Financial, SmartAsset, Smartvestor Pro, etc.
Finally, it’s worth mentioning adviser referral services. These services take some basic financial information from you and attempt to match you with financial advisers who are paying to get leads from the referral service.
You should expect that after submitting your information you will receive emails back from several advisers requesting to connect with you.
From the adviser perspective, the general view is that referral services do a poor job of matching advisers’ capabilities with the needs of the prospective client. It is for this reason that the vast majority of advisers do not use these referral services to find clients. But maybe you will get lucky and find an adviser that meets your needs.
If you want to try one of the referral services, you can; there is little downside from a client’s perspective. The only negative is that you may get many emails from advisers seeking to working with you. However, I would strongly encourage you to also conduct your own search for an adviser using the above directory tools, because you are much more likely to find an adviser whose capabilities and business practices are what you are seeking than through a referral service.
The Goal from Your Initial Search: Building Your List of Candidate Firms
Now that you have a solid background on the industry, your needs identified and knowledge about the search tools, you are in a position to successful build a list of potential firms to reach out to.
I suggest taking the following approach in your search:
If you want a local adviser, you should try to identify 7-10 firms in your local area that you think would be worth talking to.
If you are seeking an adviser who specializes on a set of clients with specific needs, you should probably expand your search beyond your local area and look for firms across the country. Again, you should identify 7-10 firms that you think could be a match.
Once you have your list of prospective firms, start reaching out to them for initial consultations.
I hope you found this guide helpful in structuring your search for a financial adviser. In a future post, I will provide information about how to evaluate firms, from what they say on their website to what the adviser says in the initial consultation.
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