How to Choose a Financial Advisor

Choosing a financial advisor can be a daunting task. With different advisors boasting different qualities and services, it can be difficult to come up with an apples-to-apples comparison based on more than your gut feeling. It's especially stressful when you consider how hard it is to switch -- no one wants to go through the information and planning phases multiple times.

Here's how to make sense of the process and ensure you get to the right advisor the first time around.

-Know what you need help with
-Sit down and think about what you really need an advisor for. For example, are you looking looking for someone who can:
-Quarterback your investment accounts and help you outperform?
-Help you stick with a long-term investing or personal finance plan?
-Develop a means to getting out of debt and meet your personal finance goals?
-Act as an ad hoc advisor on any number of financial decisions, including subjects as varied as investing and refinancing?

The answers to these questions will help you narrow down the type of advisor you'll need. For simple personal finance issues, you'll probably be better off with a fee-based financial planner. For help with investments, you'll be looking for a broker or investment advisor. If you want someone who can be involved with the whole picture of your financial life, consider an advisor who focuses on providing "full service."

Know what you're paying for

While financial planning services are almost always charged on a flat fee basis, investment accounts usually operate in one of three ways: fee-only, commission, or a combination of both.

A fee-based account will involve a flat percentage charge on assets for account management. The benefit here is that this is the only fee your advisor is paid from your account, so you know exactly how much they're being compensated, and you know there are no potential conflicts of interest.

On the other hand, commission payments are generated through investment account trades. So, for example, every time your advisor sells you a mutual fund, they'll get a commission from the mutual fund company. These fees are notoriously opaque and can lead certain unscrupulous advisors to trade your account too often.

However, when it comes to investment accounts, fee-based isn't always good, and commission-based isn't always bad. If your account is rarely ever traded, or is invested solely in index funds, keeping it on a commission basis might be cheaper and cleaner because fees are only generated when something happens.

On the other hand, a "trading" account might be better off with a fee-based arrangement, as trading expenses are usually wrapped into the fee, and there are no issues of one investment paying a higher commission than another.

Get an understanding of the advisor's approach When it comes to managing investments, there is evidence that advisors tend to recommend portfolios similar to their own. In other words, an advisor's personal investment approach is likely to influence the advice he or she gives you -- so you'll want to know what that approach is and how you feel about it.

I would argue that the same relationship probably exists on all levels of financial advice. Your advisor's opinions about subjects like debt and budgeting will almost certainly influence the advice he or she will give. How do those opinions resonate with you? Do they make sense? Do they seem scary or weird?

It's going to be a lot easier to follow along with guidance when it makes sense, seems reasonable, and "feels" like the right answer, so take the time to mull over this properly.

Don't forget about the importance of personality

Finally, at the end of the day, you'll want to assess whether you'll trust and enjoy working with the person. We all want different things from our advisors -- some people prefer a more formal business arrangement, others want a confidant; some might find an older person more trustworthy, and others might prefer to work with a peer.

While this step may seem unimportant so long as the advice is good, don't overlook it. Even if it's just a basic financial plan, your advisor is helping you deal with one of the most important issues in your life, and your ability to follow their advice and stick with their plan is going to hinge -- to a greater degree than you might suspect -- on how much you intrinsically trust them.

There are a ton of financial advisors out there, and finding the right advisor for you can feel like finding a needle in a haystack. But if you can approach the task with these four factors in mind, you'll almost certainly find that needle in no time.