What You Need to Know Before Recommending a Financial Advisor

Mar 11th 2013
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By Michael Alter

Clients who already trust their accountant's expertise with financial matters may ask for advice regarding financial planning. Being able to offer sound advice for clients will require an accountant to gain certification, designation as a financial advisor, or to partner with someone who can be entrusted to serve clients well in this area.

The whole concept of retirement was built on the era when employees could retire from a job and count on a pension. Times have changed. Financial planning is important, whether the client has a lot of money or not. It has evolved in the direction of wisely managing the money and resources clients have, regardless of quantity. The old adage about helping clients "plan for retirement" is being replaced by a newer vision of helping clients work toward financial independence. This is done by advising clients on the creation of multiple revenue streams that pay out and are not dependent on having a job when they reach the age of retirement.

To help clients manage their wealth, becoming a Certified Financial Planner (CFP® professional) or earning a financial designation is an amiable goal for an accountant. Doing so will take time and cannot happen quickly enough to serve a client's needs this season. The only other immediately viable option is to adopt a partnership model to meet this service need.

Putting this partnership together requires forethought, planning, and an agreement that clearly defines the rules or what is determined to be acceptable partnership behavior. Ultimately, when partnering with an advisor or recommending one to your clients, any work done by the advisor (good or bad) will impact your client relationships and will reflect back on you.

Before recommending or partnering with someone as a financial advisor, understand the person's qualifications and capabilities, including how he or she is compensated and how the partnership will be reciprocal.

Understanding a Financial Advisor's Qualifications and Capabilities

Communication with clients is critical to an accountant's work. The same holds true for financial advisors. Clients may have dreams of one day retiring and not having to work anymore, or they may have other intermediate financial goals, such as paying off a mortgage, financing a college education for their child, or building a cottage or retirement home. Financial advisors, like accountants, should be skilled at engaging clients in conversation that helps to crystallize financial milestones and goals. Helping clients stay on track and achieve these goals requires a qualified, capable financial advisor.

The term "financial advisor" can cover a broad range of professional activities. Some provide only a few select services, while others run the gamut and provide information and management of investment plans; estate planning; business succession plans; property, life, and disability insurance; and pension or other retirement planning services. They may work for a brokerage firm, a company, or independently.

Beyond financial planning and products, financial advisors can evaluate whether clients have enough insurance; provide insights into local, state, and federal tax laws; and advise clients about how to remain in compliance while also preparing for upcoming legal and regulatory changes. Ultimately, financial advisors must (1) understand a client, (2) help to formulate and set realistic financial goals, and (3) pinpoint the most appropriate financial avenues to help the client reach those goals.

There are more than 100 professional designations in the financial planning industry. According to the National Association of Personal Financial Advisors (NAPFA), fancy letters behind a financial planner's name may be significant, or they may make the person sound more competent than he or she really is. NAPFA suggests looking for financial advisors who have one or more of the following designations:

  • Certified Financial Planner®
  • Personal Financial Specialist (CPA/PFS), which is granted to CPAs who meet necessary requirements.
  • Chartered Financial Consultant (CHFC)

If you do not already have a relationship established with a financial advisor, or if you are unsure where to go or what to ask a financial advisor about his or her approach to financial planning, start by reading NAPFA's free field guide, The Pursuit of a Financial Advisor.

Other resources that provide information about financial advisors:

Compensation Models and Ensuring a Reciprocal Relationship

Entering into a partnership with a financial advisor can immediately impact clients' wealth. There are several different compensation models financial advisors may follow. Knowing how compensation is received may affect the advice clients receive from a financial advisor. The three most common compensation models are fee-only, fee-based compensation (fee and commission), and commission.

The fee-only model minimizes conflict of interest, where the advisor charges only for advice or ongoing management. There is no ongoing payout in the form of commission, there is no commission paid based on a product sold to the client, and clients are typically billed at a flat or hourly fee. The fee and commission model is where the advisor collects a flat or hourly fee plus a commission on the product the advisor sells to a client. This introduces the possibility of a conflict of interest and the potential for a client's best interests to potentially be jeopardized. Advisors who operate on commission only are seen by NAPFA as salespeople, who, for better or worse, may opt to sell only the product that is the most profitable for them.

Before rushing into a relationship with a financial advisor who comes highly recommended or who has the credentials and compensation model you prefer, consider how that partnership might benefit your clients and your accounting practice. Consider how involving another service professional is going to benefit your firm in a direct or indirect way. Question whether the advisor will send his or her clients your way for accounting or payroll services. Work out a partnership agreement that spells out the rules of the partnership to ensure everyone benefits.

Finally, after a partnership is formed, revisit the agreement periodically to analyze the progress and determine if continuing a partnership remains in the best interests of clients and the firm.

Read more articles by Michael.

About the author:

Michael Alter, payroll expert with an MBA from Harvard Business School, is a nationally recognized spokesperson providing thought leadership and sensible advice to help accounting and payroll professionals build deeper more profitable relationships with clients. Alter, president of SurePayroll, writes the Trade Secrets column on and is frequently published in Bloomberg TV, Wall Street Journal, and Entrepreneur Magazine.


Replies (1)

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By Larry smith
Jun 25th 2015 20:12 EDT

I like when you said," The job should be to save you money in the
investment process; it is not to earn returns." It is important to have
realistic expectations of your adviser.

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