Learn about the types of financial advisors available so you can begin to understand which one is right for you.

Wouldn’t it be great if there were someone you could rely on for sound advice when making financial decisions? Unless you have a background in economics or a degree in finance, you may feel overwhelmed when deciding between buying a house or continuing to rent, prioritizing retirement savings or a college fund, or retiring in five years or waiting until your mortgage is paid off. Financial decisions can seem overwhelming when you don’t have the right guidance.

How Do You Know Whom to Trust?

You need a financial advisor who is qualified to give you personalized guidance.

Financial guidance is everywhere, just ask your brother-in-law who always seems to have a hot stock tip to share. The problem is knowing which advice is right for you and whom you can trust. Your brother-in-law might know stocks, but he does not know the details about your finances. And even though he has your best interests in mind, he is not legally bound to give you advice that protects you. You need a financial advisor who is qualified to give you personalized guidance.

Financial Terms to Understand Before Choosing an Advisor

Before deciding whom to trust with your financial information and whose guidance you should listen to, you need to understand a few common financial planning terms.

• Fiduciary versus non-fiduciary:
  A fiduciary holds a legal and ethical relationship to protect the client. A non-fiduciary advisor might recommend transactions or products because they pay a higher commission but are not necessarily the best or least expensive option for you. Fiduciary advisors put your interests first with guidance that supports your financial goals.

• Fees versus commissions:
  Some financial advisors work for fees only. You pay them directly for their services. They might charge based on an hourly rate, a flat rate, or a percentage of the amount of money they manage for you. Commission-only advisors are paid by a third party for selling you a financial product. Some financial advisors charge on a fee basis for certain transactions and earn a commission for others. Certain financial products can only be purchased on a commission basis.

• Certified versus uncertified:
  There is no legal definition of financial advisor. That means almost anyone can call themselves a financial advisor regardless of their education or training. Not all certifications are the same. The most valuable certifications include the 4 Es: Experience, Education, Exam, and Ethics.

• Experience versus accolades:
  The results that a financial advisor gets for their other clients is not the best indicator of how they will perform for you. Claims of building wealth can be impressive, but it is really the experience that counts. It is important to find a financial advisor who has experience working with clients who are similar to you. If you are a union member, have a young family, or have a high net worth, look for a financial advisor whose client base matches your demographics.

Types of Financial Planning Advisors

To find the right advisor, you must know what you’re looking for. You don’t need a stockbroker if you are saving up to buy your first house. Understanding the focus of different types of financial advisors will help you choose the right one.

• Registered investment advisor (RIA):
  Sometimes referred to as investment advisors, RIAs are licensed with the state and the SEC to manage investment portfolios and offer investment advice to clients. RIAs are also fiduciary advisors, meaning they are legally obligated to act in their clients’ best interests.

• Certified financial planner (CFP®):
  A financial planner can give financial advice and help you manage your finances. A CFP meets strict requirements for education and experience and has passed a certifying exam. You can check the credentials of a CFP with the CFB Board. CFPs are fiduciary advisors and must act in the best interest of their clients.

• Financial consultant:
  This is a general term, like financial planner, that does not stipulate any specific skills or training. A chartered financial consultant (ChFC®) is tested and certified by The American College of Financial Services. Similar to a CFP, a ChFC is a fiduciary advisor and follows a strict code of ethics.

• Financial coach:
  Working with clients on their financial literacy, financial coaches help you learn the basics so you can build future wealth. Financial coaches focus on money management skills like how to pay down debt or create a budget. They don’t usually give investment advice.

• Wealth advisor:
  Offering financial planning and investment advice to wealthy clients, wealth advisors usually require a minimum investment of more than $1 million. They can assist in all areas of a high-net-worth client’s financial life.

• Broker-dealer and registered representative (RR):
  Trading securities like stocks and bonds is regulated by the Financial Industry Regulatory Authority (FINRA). Registered representatives (RRs), also called broker-dealers, are licensed and registered by FINRA. They may also sell mutual funds, life insurance, and other commission products.

• Robo-advisor:
  This automated investment management service creates and manages an investment portfolio based on computer algorithms. A robo-advisor is an inexpensive option for managing investments but does not offer other types of financial services. Some robo-advisor services also include access to a financial professional who can discuss strategy with you.

Now that you know the different types of financial advisors, it’s important to do some research. Figure out what type of advisor you need and try contacting your financial institution for recommendations. You’ll want to interview a couple before choosing the financial advisor who is best for you.