How to Choose a Financial Advisor

March 28, 2013

couple with finacial plannerFor the same reasons people bring their cars to mechanics and their taxes to CPAs, many who invest for their future do it with the help of a financial advisor. It could be a lack of time to do your own due diligence, or the inclination. Maybe it’s the idea that “most” financial advisors spend their entire career learning and training at their craft in order to help you. Whatever the reason, picking the right one can be a very tricky process.

What’s in a Name?

These investment individuals go by many different names: advisor, planner, investment rep, retirement specialist, the list goes on and on. Ultimately, they are all in this business to do the same thing; help you with your investments. Every one has a different idea, a different story, and a different approach to investing. The key is to find the right one that works for you.

The truth is, just about anyone can become a financial advisor. The way the big companies like Merrill Lynch work, is they bring in young and/or inexperienced individuals to pound the pavement, dial the phones, and shake the trees. If they are good, lucky, or know enough people with money they make it. Inexperience can be a difficult thing to overcome, but shouldn’t be the only reason to rule a prospective advisor out.

Some will go the extra mile to get those important three letters after their name, CFP (Certified Financial Planner).  A CFP must go through a Master’s Degree-like course and pass a rigorous test administered by the Certified Financial Planner Board of Standards about the specifics of personal finance. They must also commit to continuing education on financial matters and ethics classes to maintain their designation. This all sounds great in theory, but this writer has worked with CFPs who didn’t know the first thing about investing or creating a long-term plan for their clients.

So how do you avoid falling into a relationship with a bad advisor? Just like the investments themselves, there is no guarantee, but maybe we can arm you with a few ideas to limit that possibility.

Side-Stepping Land Mines

A little experience can take you a long way. In this case, it is that knowledge from a friend, family member or colleague that can help you. Asking someone you trust what they do and who they use can help you start the process. Rather than meeting someone you know nothing about, you can get some insight into the advisor and how they handle their business from the person you trust.

When you meet with an advisor for the first time, just like a first date, location can be key. You may not feel comfortable having this stranger come to your house, but going to their office may not be the best environment either. You can learn about the office, the team and anything else at a later date. Don’t let the pomp and circumstance fool you. Meeting at a neutral location for coffee makes the advisor prove him or herself without the smoke and whistles some use to create an air of importance where there is none.

Also, like a first date, conversation is key. If they want to hear all about you that is a good thing, but it may mean they have nothing to offer. If they just want to talk about themselves, that should also set off warning flags. The good ones strike a balance between learning about you and offering ways they can help you as they learn more.

Digging into the Details

Remember, for all intents and purposes, this is a job interview. Don’t be afraid to ask questions. Find out about how he/she gets paid. Is it by commission or a flat fee paid quarterly? What type of analysis do they use to choose the investments to create a portfolio and how often do they monitor the holdings? Do they re-balance the portfolio, and if so, how often? How often would you be hearing from them and how many meetings will take place each year to review your account?

Be careful when asking about performance. Not everybody is Warren Buffett, and if an advisor claims to beat the market every year, then all sorts of flags horns and sirens should be going off in your head. In truth, you do not need to beat the market every year to accomplish your goals, and there are very few who do. Ultimately you will want to work with this person to figure out what your goals are and devise a plan to accomplish them.

Ask about their experience and who they have worked for. Be sure to take notes. When you go home, you can go to the FINRA website and do a background check to confirm what you were told. It will also tell you if the advisor has been in trouble, or if a complaint has been made about them. These aren’t always deal breakers, as many times there are items on an advisor’s “record” that may not have been entirely the fault of the advisor or as bad as it seems. You will definitely want to follow up with this person for an explanation though.

Hopefully some – if not all – of these ideas can help you in your hunt for a financial advisor. Remember, this is a relationship, and in the end, if you do not feel comfortable with this advisor, move on. Good luck!

Do you have a financial advisor? If so, how did you find them and get to know them? Leave a comment!


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