It’s usually not a good idea to take your entire life savings to Las Vegas and bet it all on one hand—but picking the wrong financial advisor to manage your money could be doing just that.
Selecting the right advisor isn’t a step that should be taken lightly. Just as you wouldn’t want to gamble away your savings, it’s not wise to hand over the financial reins to someone who isn’t trustworthy in their craft.
Naturally, you’ll want to know more about his experience, the areas he specializes in, how he can help you reach your financial goals, and most important, how much it it will cost. His track record and any regulatory complaints can be key indicators.
With those questions in mind, how do you go about choosing the right financial advisor? According to research group Cerulli Associates, there are nearly 285,000 of them in the U.S. alone. Like any good investment, the work you put into finding a good advisor will show in the results he can provide. Keep some of these tips in mind as you start your search.
Avoid Confusing Credentials
Start familiarizing yourself with the titles and licenses to see who’s qualified and who isn’t.
“Anyone can hang out a shingle as a financial planner, but that doesn’t make that person an expert,” according to The Wall Street Journal.
A registered representative, according to Forbes, is another name for a stockbroker, or investment or bank representative. Those with this credential sell investment and insurance products; to do so, they need a Series 6 or 7 financial license.
Financial advisors are held to high industry standards and generally come in two forms: Registered Investment Advisors, or RIAs, and Investment Advisor Representatives (IARs). RIAs are firms whereas registered investment advisors are people.
Financial planners are not required to be licensed, but the ones who are will have completed the necessary college course work, training and examinations to earn one or more of a few certifications:
- CFP: Certified Financial Planner
- ChFC: Chartered Financial Consultant
- CPA/PFS: Certified Public Accountant
For further information on certifications, visit the Financial Industry Regulatory Authority at www.finra.org.
Understand Your Needs
Forbes recommends seeking out an RIA if you want someone to manage your money. If you’re a businessperson and tax planning is your aim, then hiring a CPA might be a better choice.
Opinions on who to hire will vary according to your needs, but if there’s any doubt over who to pick, go for a CFP, arguably the best known title in the financial planning world.
According to financial expert Suze Orman, “An adviser should be a Certified Financial Planner…That means that he or she cares enough about his or her clients to have gone through a two-year certification process, with continuing education requirements that he or she stay up-to-date on the kinds of information that you need.”
However, don’t put all your eggs in the CFP basket just yet.
As The Wall Street Journal notes, “…even those who pass the exam may come up short on skills and credibility. As with all things pertaining to your money, be meticulous in choosing the right planner.”
Check Their Track Records
Like any professional, a financial advisor can have a few months or a few decades of expertise.
“Your planner should have, at the very minimum, a few years of experience in planning or allied fields, such as accounting, securities analysis or trading, or law,” writes the editors at Kiplinger.
What’s their success rate? If you’re searching for a financial advisor, find a website (like Credio’s financial advisor database) with detailed profiles of advisors in your area. How many years have they been practicing? Do they hold multiple licenses? How many assets and accounts do they manage? What types of clients do they serve?
Maybe there’s an advisor or two who have caught your eye. Do you know anything about their criminal or legal background? Now’s the time to take advantage of those Internet research skills.
FINRA will have a complete list of an advisor’s disciplinary history. The U.S. Securities and Exchange Commission is another resource; check there for an advisor’s Form ADV or U-5 for updated compliance records. Don’t hesitate to run a background check, too.
Make Google your friend when researching an advisor’s firm. Jacobs of Forbes suggests making judicious use of keywords like fines, scams, fraud, lawsuits, guilty, suspensions, FINRA and SEC.
Meet In Person
Don’t hire an advisor without meeting with him in person. Experts recommend narrowing down your advisor shortlist to three or four, then scheduling an appointment.
This will give you an initial look into how they do business, and the culture of their office environment.
Be up front about your financial needs, and expect them to disclose the same. Come prepared with a list of questions and requests:
- Ask for a sample quarterly financial report. The advisor should be able to give you a detailed walkthrough of how they’ve performed their services for other clients. This is the time to see if their investment approach aligns with yours.
- Find out how much money you’ll be charged. Broach the topic like you would with an attorney. Do they charge a consultation fee? Do they operate on commission? What kinds of costs might you incur? Will they receive a portion of your investment earnings? Like certifications, each advisor might vary in this area.
- Estimate how much or little contact they’ll have with you. Is he the type of advisor who calls you 20 times a day, or once a year? His correspondence style could conflict with yours, and vice versa. Aim to touch base at least once a month.
- Check references. However, remember that they’re likely hand picked by the advisor to give the best client feedback. Ask them about the advisor’s service quality, asset size, why they chose the advisor, how long they’ve worked with them and their knowledge of the advisor’s disciplinary background.
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