Financial Advisor Comparison Tool

CONSUMER TOOLS

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 advisor’s

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:_________________________________________

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 ﬁrm’s 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 client’s 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 don’t 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.

CONSUMER TOOLS

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.

CONSUMER TOOLS

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 person’s 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 NAPFA’s 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

client’s 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 client’s 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.