How to choose a financial advisor

I would like to begin working with a financial advisor. What is the best way to search? What questions should I ask when interviewing a potential advisor?

Choosing a financial advisor is a very important decision. We have recently seen the damage that can be done to people's lives when financial advisors are not actually representing the best interests of their clients.

The question is good and there is no perfect or prescribed path. That said, here are some things that you might want to consider initially:

1) How long has the advisor been in business? This is important from the standpoint of the advisor's knowledge and experience, but also serves as an indication that the advisor is committed and is doing a good job for other clients.

2) Ask friends or colleagues for recommendations.

3) Does the financial advisor specialize in any particular area (e.g. asset management, insurance, financial planning, etc)? The financial services landscape is broad, and it is difficult for an advisor to be all things to all people.

4) Is the advisor independent or are they affiliated with a company? Independent can be a good indication since the advisor is presumably free to discuss products and solutions that are in your best interests rather than in the interest of the firm that they represent.

5) Is the advisor a willing to act as your fiduciary? This is critical. A fiduciary is legally obligated to represent the best interests of their clients. Most advisors are not fiduciaries, but rather serve as sales reps for a larger financial services organization. Many registered investment advisors (RIAs) are fiduciaries, but it may be hard to find one that will discuss annuities with you.

6) Does the advisor work on a fee basis? If so, this is a positive. Fee-based advisors have incentives that are pretty well aligned with yours. In contrast, commissioned salespeople may not have incentives that are aligned with your best interests.

7) Do you get the feeling that you are being sold a product? If so, you may want to think twice.

8) Is the advisor patient and consultative? This is a great indication.

9) See if your employer has a strong recommendation.

Maybe this is a stupid question, but are Financial Advisors really worth it? Sometimes they charge upwards of 1% of YOUR money.

Some financial advisors--particularly fund managers--charge much more than 1 percent.

Short answer is that financial advisors can provide a very valuable service, and deserve compensation for that service if it is warranted.

That said, like any product or service not all financial advisors are created equal--it pays to shop around and find a good advisor because they do exist.

I completely agree Tom! Most people I know either use an independent financial advisor, lawyer or accountant to help with their retirement, college planning and estate planning needs and don't go it on their own. Of course, how much help someone needs depends on the complexity of their situation. I always think it's best to interview people at various firms and understand their services, or if you want to find someone more independent, you can look at directories provided by AARP or others.

To me it seems there is a clear trend toward more people getting advice and fewer being completely self-directed. To some degree, when the market was only going up, more people felt they were doing just fine managing their own money. Then when we had the recent financial meltdowns, they realized their investments were not diversified enough or they were not saving enough.