CONSUMER TOOLS
Financial Advisor Comparison Tool
Is your advisor the right one for you?
How do you sift
through the hype
when looking for a
nancial advisor? Will
a rm with a huge
advertising budget
do the best job
helping you meet life’s
nancial goals?
TV ads may talk about your hopes and dreams, but ultimately
salespeople focus almost exclusively on getting you to purchase
their products. When it comes to your nances, the situation is
the same. Many nancial services professionals are paid by your
buying their insurance and investment products. Your financial
situation is complex; a true financial advisor will analyze
your current condition, make prudent recommendations and
support you along the way.
e Financial Advisor Comparison Tool, created by the
National Association of Personal Financial Advisors (NAPFA)
is a thorough questionnaire you can use to evaluate a financial
advisor. e questions and popular answer key will help
you make an informed decision based on the responses a
financial advisor provides. Before hiring a financial planning
professional, perform this simple diagnostic. If the advisors
answers do not follow prudent core values, you may not be
speaking with the right advisor for you.
Services
1. Financial planners provide a range of services. It is important to match your needs with services provided.
Do you oer advice on? (check all that apply)
Goal setting Estate planning
Cash management & budgeting Insurance needs
Tax planning Education funding
Investment review & planning Retirement planning
Other: _______________________
2. Do you provide an analysis of my financial situation and specic recommendations?
Yes No
3. Do you oer assistance with implementation with the plan?
Yes No
4. Do you oer continuous, on-going advice regarding my financial aairs, including advice on non-investment
related financial issues?
Yes No
5. Other than receiving my permission to debit my investment account for your fee, do you take custody of, or
are you able to withdraw my assets?
Yes No
6. If you were to provide me on-going investment advisory services, do you require “discretionary” trading
authority over my investment accounts?
Yes No
7. How many clients do you work with?_______
8. Are you currently engaged in any other business, either as a sole proprietor, partner, officer, employee, trust-
ee, agent or otherwise? (Exclude non-investment related activities, which are exclusively charitable, civic,
religious or fraternal and are recognized as tax-exempt.)
Yes No
9. Will you or an associate work with me?
I will An associate Work as a team
10. Will you provide me with references from other professionals?
Yes No
Education
11. What is your educational background?
College Degree: Yes No Area of Study:_________________
Post Graduate Degree: Yes No Area of Study:_________________
12. What are your nancial planning credentials/designations? (Check all that apply)
Certied Financial Planner (CFP)
Certied Public Accountant/Personal Financial Specialist (CPA/PFS)
Chartered Financial Consultant (ChFC)
Other:_________________________________________
Other:_________________________________________
Other:_________________________________________
13. How long have you been oering financial planning services?
Less than 2 years 2-5 years 5-10 years 10+ years
Financial planning costs include what a client pays in fees and commissions. Comparison between advisors
requires full information about potential total costs. It is important to have this information before entering into
any agreement.
14. How is your firm compensated and how is your compensation calculated?
Fee-Only (as calculated below):
Hourly rate of $______/hour
Flat fee (Range and Explanation)________________
Percentage_______% to_______% of____________ (AUM, Net worth, etc.)
Commissions only; from securities, insurance, and/or other products that clients buy from a firm with
which you are associated
Commission and Fee
Fee Oset (charging a flat fee against which commissions are oset). If the commissions exceed the fee,
is the balance credited to me? Yes No
15. Do you have an agreement describing your compensation and services that will be provided in advance of the engagement?
Yes No
16. Do you have a minimum fee?
Yes No
If yes, please explain:_____________________________________________________________________
Objectivity
17. If you earn commissions, approximately what percentage of your firms commission income comes from:
_____% Insurance products _____% Stocks and bonds
_____% Annuities _____% Coins, tangibles, collectibles
_____% Mutual funds _____% Limited partnerships
_____% Other:________________________________________________________________
18. Does any member of your firm act as a general partner, participate in, or receive compensation from in-
vestments you may recommend to me?
Yes No
19. Do you receive referral fees from attorneys, accountants, insurance agents, mortgage brokers, or others?
Yes No
20. Do you receive on-going income from any of the mutual funds that you recommend in the form of
“12(b)1” fees, “trailing” commissions, or other continuing payouts?
Yes No
21. Are there financial incentives for you to recommend certain financial products?
Yes No
22. Will you sign the following Fiduciary Oath?
Yes No
Fiduciary Oath
e advisor shall exercise his/her best eorts to act in good faith and in the best interests of the client. e advisor
shall provide written disclosure to the client prior to the engagement of the advisor, and thereaer throughout the
term of the engagement, of any conflicts of interest, which will or reasonably may compromise the impartiality or
independence of the advisor.
e advisor, or any party in which the advisor has a financial interest, does not receive any compensation or other
remuneration that is contingent on any clients purchase or sale of a financial product. e advisor does not receive
a fee or other compensation from another party based on the referral of a client or the client’s business.
Following the NAPFA Fiduciary Oath means I shall:
- Always act in good faith and with candor
- Be proactive in disclosing any conflicts of interest that may impact a client
- Not accept any referral fees or compensation contingent upon the purchase or sale of a financial product
Signature
Objectivity
Regulatory Compliance
Federal and state laws require that, under most circumstances, individuals or firms holding themselves out to the
public as providing investment advisory services are required to register with either the U. S. Securities & Exchange
Commission (SEC) or the regulatory agency of the state in which the individual/firm conducts business.
23. Have you ever been cited by a professional or regulatory governing body for disciplinary reasons?
Yes No
24. My rm is registered as an Investment Advisor?
Yes No
SEC registration? Yes No
State registration? Yes (In the following states _______________) No
Please provide your Form ADV Part II or brochure being used in compliance with the Investment Advisors Act
of 1940. If not registered with either the SEC or any state, please indicate the specific reason (regulatory exemp-
tion or other reason) for non-registration.
Please Note: A yes or no answer requiring explanation is not necessarily a cause for concern. We encourage you to
give the advisor an opportunity to explain any response. Information geared to the investing public can be found on
the Securities & Exchange Commission website (http://www.sec.gov) under the “Investor Information” section.
25. Do you have a business continuity plan?
Yes No
is form was created by the National Association of Personal Financial Advisors (NAPFA) to assist
consumers in selecting a personal financial advisor. It can be used as a checklist during an interview, or sent
to prospective advisors as part of a preliminary screening. NAPFA recommends that individuals from at
least two dierent firms be interviewed.
Once you have a completed Comparison in hand it’s time to
evaluate the responses. NAPFA provides the following Answer
Key based on the long-standing ideals of the organization:
Question #1 – e financial advisor that you engage should be willing
and able to provide you with a written analysis of your current financial
situation as well as appropriate corresponding recommendations to help you
accomplish your objectives. is written analysis can serve as the starting
point for beginning your client/advisor relationship.
Question #2 – e development of a financial plan is the initial step to
properly assessing your finances. A plan, however, has little value until it is
implemented. As opposed to ‘going it alone, consider having your financial
advisor implement the plan. Fee-Only advisors can oen reduce your
investment costs by investing in assets with reduced annual expenses and no
related sales commissions.
Question #3 – Some consumers find regular or periodic reviews and on-going
communication necessary to remain on track toward achieving financial
objectives. If this level of involvement is important to you, make sure the
financial advisor you hire provides this ongoing support.
Question #4 – Many financial professionals loosely use the term
Comprehensive” in describing their range of financial planning services.
Financial planning is generally much more than simply developing a plan for
primarily short-term objectives and reviewing the plan when appropriate.
Financial planning typically covers a wide range of both short- and long-term
financial issues and addresses your personal goals, objectives and significant
life cycle events. e more services your financial advisor provides, the greater
your odds of receiving truly holistic financial planning.
Question #5 – While allowing an advisor to debit your investment account
for her/his fee is fairly typical, you should avoid permitting an advisor to
have physical “custody of your investment assets, or the ability to make
withdrawals or transfers from your account(s) without express specific prior
written consent prior to each such withdrawal or transfer. Generally, advisors
who dont accept commissions will not expose their clients to these “custody”
type situations. When you use a Fee-Only advisor, an unaffiliated brokerage
firm will usually maintain physical custody of your investment assets.
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Comparison Tool Answer Key
Question #6 – If you grant an advisor “discretionary” trading authority over your
investment account, the advisor can place orders to either buy or sell securities
without consulting with you ahead of time. If you have granted your advisor “non-
discretionary” trading authority, the advisor must obtain your approval prior to making
any transactions in your account. If you are going to grant “discretionary” authority to
your advisor, prior to making the initial investments, it is advisable to have a written
document setting forth the terms and conditions of the discretionary engagement
(usually set forth in an Investment Management Agreement). Additionally you should
receive a corresponding written document setting forth the investment parameters
for the accounts to be managed (i.e. investment objectives, percentage allocations,
restrictions, etc.), oen referred to as an Investment Policy Statement. Of course, you
should always continue to monitor the activity within your investment account to make
sure that transactions are within the parameters of an agreed-upon investment policy.
Question #7 – Personal attention is important when engaging a financial advisor. e
number of clients an advisor works with will help you better understand how much
attention she/he will be able to devote to you and your situation. If the number of clients
seems excessive, ask how advising that many clients will aect your relationship.
Question #8 – By knowing what other business ventures a financial advisor is
involved in, you will better understand if there are any conflicts of interest with
regard to the advice that you might receive. is is especially important if the advisor
is involved with any other investment related entity. If there is a relationship in
place with another conflicting organization, ask for a detailed account of how that
relationship will impact the advice she/he will provide you.
Question #9 – When engaging a financial advisor, you will want to know whether you
will be working with that person directly or another qualified professional who is part
of a team. If the advisor indicates that an associate will primarily work with you, ask to
meet that person prior to commencing the relationship.
Question #10 – If you request, the financial advisor filling out the Diagnostic should
also be willing to share the name of another financial professional with whom he/
she has worked. By talking with another financial professional who is familiar with
the prospective financial advisor you might be better able to learn more about their
abilities and strategies for recommending prudent courses of action. Privacy laws
severely limit an advisor’s ability to share client information.
Question #11 – Although not currently required by applicable regulatory authorities,
NAPFA believes that a financial advisor should have an advanced education in
financial planning topics such as investments, taxes, insurance, or estate planning
in addition to a college degree. Also, NAPFA believes that your planner should
be required to participate in continuing professional education to keep his/her
knowledge base current.
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Comparison Tool Answer Key
Comparison Tool Answer Key
Comparison Tool Answer Key
Question #12 – ere are a number of professional certifications or designations
financial advisors can obtain, and each requires a dierent level of Continuing
Education requirements to maintain. It is important to take the Continuing
Education requirements into account when selecting an advisor, since one may
assume the more Continuing Education required by the governing body she/he
belongs to, the more knowledgeable the advisor. Continuing Education also helps
advisors stay on top of trends in the industry, which should help them make better
recommendations for your financial situation.
Question #13 – Just because someone has one of the above listed designations
does not by itself mean that person is a truly competent financial advisor.
You should carefully examine a persons background and experience when
choosing an advisor; someone who has been in the industry longer and
provides inclusive financial planning may be a better fit for you, especially if
you have a complicated financial situation.
Question #14 – How should a financial advisor charge for services? e
members of NAPFA firmly believe that financial advisors should charge using
a fee for service model. Although NAPFA recognizes that financial planners
can provide services on a commission basis, it is NAPFAs core position that a
fee for service engagement removes the potential conflicts of interest that are
inherent in a commission relationship.
Question #15 – Prior to formalizing a relationship, a financial advisor should
always provide you information which clearly discloses how she/he will be
compensated: Fee-Only, commissions, etc. Ask for this information prior to
commencing a relationship, and if there are any corresponding conflicts of
interest presented by the compensation arrangement.
Question #16 – Financial advisors may charge a minimum fee for services
they render. If you have limited financial planning needs and/or a small
portfolio, paying a minimum fee may not be in your best interests. If that is
your situation, search for an advisor who will provide you professional advice
on a flat-fee, project, or hourly basis.
•NAPFA-Registered Financial Advisor = 60 hrs every 2 years
•Certied Financial Planner (CFP) = 30 hrs every 2 years
•Chartered Financial Consultant (ChFC) = 30 hrs every 2 years
•Certied Public Accountant/ Personal Financial Specialist (CPA/PFS) = 60* hrs every 3 years (min)
•Certied Public Accountant (CPA) = 120 hrs every 3 years
•Chartered Financial Analyst (CFA) = 40 hrs every 2 years
Requirement ranges between 60 and 135 hours every three years based on total hours of business experience.
Comparison Tool Answer KeyComparison Tool Answer Key
Question #17 – While NAPFA encourages you to consider using a commission-
free Financial Advisor to minimize the potential for conflicts of interest, you
may instead select an advisor who accepts commissions. Financial advisors
who are compensated based on commissions should be able to explain how
they are compensated and identify what percentage of their compensation is
derived from the sale of various commission-based investment products and/or
securities trading.
Question #18 – Ask your prospective financial advisor if she/he is limited
to presenting certain types of investments or investment products to you. If
so, inquire why she/he is limited, and how this might impact the success of
attaining your goals and/or the amount of fees to be paid.
Question #19 – As you work with a financial advisor, other needs revolving
around important financial issues will become evident. Certain advisors, for
example, recommend attorneys, accountants, insurance agents, and mortgage
brokers to their clients. You should inquire whether the financial advisor will
receive a referral fee from the recommended professional. If the financial
advisor does receive a referral fee or some other type of compensation from the
professional(s) that she/he may recommend to you, you should seriously consider
this conflict of interest prior to engaging the recommended professional.
Question #20 – Some mutual fund and investment product sponsors pay 12b(1)
and similar fees. A financial advisor who receives 12(b)1 fees or “trailers” is not
a Fee-Only Financial Advisor. Trailing fees may negatively impact you, because
typically the product sponsor charges shareholders higher fees and then pays a
portion of the money to the financial advisor on an ongoing basis.
Question #21 – Commission-based advisors may receive higher commissions
on certain products they sell than on others. is may influence their decision
to recommend investment products that are not in your best interest. Ask
your prospective financial advisor how his/her recommendation might impact
the success of attaining your goals and/or the amount of fees to be paid. Fee-
Only advisors do not have this conflict of interest; they are able to recommend
investments based solely upon your specific needs.
Question #22 – Accountability is important in financial planning. While there
are many people in the financial services industry who profess to have the
clients best interests at heart, they still may make recommendations that present
a conflict of interest. NAPFA requires all of its members to sign a Fiduciary
Oath; this helps to ensure that each clients best interests, not the advisor’s, are
always a priority.
Comparison Tool Answer Key
Question #23 – Be wary of a financial advisor who has been disciplined by
a professional or regulatory body. In many cases, financial advisors who are
disciplined are being held accountable for imprudent advice or abuse. You
should, however, give an advisor the opportunity to explain his/her side of the
disciplinary incident.
Question #24 – NAPFA believes that any financial advisor oering financial
planning services should be registered as an investment advisor with either
the U.S. Securities and Exchange Commission (SEC) or with the state
regulatory agency within the advisor’s state. Information pertaining to both
SEC registered investment advisors (and the vast majority of state registered
investment advisors) is set forth on Part I of the advisor’s Form ADV
(see www.sec.gov). Unlike other investment professionals, only registered
investment advisors owe a fiduciary duty under law to their clients (i.e. they
are required to always act in the best interests of their clients and to make full
and fair disclosure of all material facts, especially when the advisor’s interests
may conflict with those of the client).
Question #25 – A concern for many clients is they will retain the services of
a financial advisor who might soon retire, pass away, or transition completely
out of financial services. If any of these events were to occur, what would
happen to you? You should ask your prospective financial advisor if she/he
has a plan in place to address any potential situations whereby she/he might
no longer be able to provide services.