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
Finding the Right Financial Advisor
Finding the right financial advisor can be a daunting task in today’s world.
We are constantly bombarded by ads from brokerage firms, money managers, insurance companies and banks that all tell us that they are the best at what they do and that we should therefore entrust all of our money to them alone.
That can make it even harder for you to find an advisor who you feel comfortable with.
Giving some or all of your money to a complete stranger can be a very intimidating proposition in many cases.
After all, how do you know that this person isn’t simply going to abscond with your money and never be heard from again?
You have heard of this sort of thing happening from the news, and you don’t want to become another statistic.
Fortunately, it is often possible to weed out the bad apples from the rest of the pack by asking the advisor a few basic questions about his or her background and business model.
Here is a list of the questions that any honest, competent financial advisor should be able to answer satisfactorily.
How are you compensated?
There are four basic ways that financial advisors can charge for their services.
They are:
By commission – there is a charge for each transaction that is performed.
The more transactions there are, the greater the amount of commissions that are earned by the advisor.
Most stockbrokers and insurance agents are paid this way.
By the hour – A financial advisor who does not manage money for his or her clients may charge you an hourly fee to dispense unbiased financial advice.
Experienced advisors (especially those who have earned a credential or two) often charge $100 to $150 an hour or more for their advice.
With a flat fee – Some advisors will charge you a single set amount for their advice or for a written financial plan.
But this cost can be hefty in some cases, especially if your financial situation is complex.
A percentage of assets under management – Many money managers use this model because it directly aligns their financial best interest with yours.
For example, if they charge a fee of one percent to manage your assets, then their annual fee will increase if your asset base grows that year.
So this motivates the advisor to make prudent investment choices that will pay off for both of you.
All four of these models have their place in the financial industry.
Although it may seem like those who charge a percentage of assets under management would be the most trustworthy, there are many advisors who charge nothing but commissions and still make their clients a great deal of money.
Although there are commission-hungry advisors out there who care nothing for your financial well-being, there are also many very ethical money managers who only charge commissions for their services.
But if an advisor is not willing to tell you how they earn their living, that should be a warning sign to look elsewhere.
What do those letters after your name on your card mean?
In order to be able to evaluate the answer to this question, it may behoove you to know something about the common professional designations used in the financial industry today.
To that end, here is a list of some of the major financial designations that are carried by many advisors.
- Certified Financial Planner® (CFP®) – This is perhaps the most recognized designation in the financial marketplace today. Designees have completed five undergraduate courses covering insurance, investment, tax, retirement and estate planning as well as college planning, the financial planning process and ethics. Then they have to pass a rigorous board exam covering the entire curriculum. Many financial advisors who charge either a flat fee or by the hour carry this designation as proof of their competence.
- Chartered Life Underwriter (CLU) – This credential is by far the oldest of the major financial designations, having been introduced over 80 years ago. Designees must complete eight undergraduate courses dealing with various aspects of life insurance and personal finance. But there is no comprehensive board exam at the end.
- Chartered Financial Consultant (ChFC) – This is another financial planning designation geared towards life insurance agents and brokers who wish to do financial planning and carry a credential without having to pass the rigorous CFP® board exam. As with the CLU, eight undergraduate courses must be completed in order to earn this designation. Many advisors who earn the CLU designation go on to earn this one as well, as many of the courses that can be taken will count towards either designation.
There are many other financial designations that an advisor may carry, but these are by far the most recognized and the most difficult to obtain.
Have you ever been disciplined by regulators?
This is one question that any advisor you use had better answer honestly.
You can check an advisor’s disciplinary history at www.sec.gov or www.finra.org.
The former website will give you the regulatory history of any Registered Investment Adviser or Investment Adviser Representative.
FINRA’s website will give you the lowdown on anyone who has any type of securities license.
If your advisor tells you that their record is clean and you find disciplinary issues on one of these sites, then that should be a red flag that the advisor is not being honest with you.
How long have you been in this business?
As with any other line of work, those who have some experience in the industry will most likely be able to provide superior service to those who are just starting out.
Of course, this is not always the case, but as a general rule, it is wise to find an advisor who has been in the business for at least five years.
It takes time to develop a realistic perspective in the financial industry, and not everyone who starts out in this business will make it.
If you entrust your money to a newbie, he or she may wash out at the firm where they work and be forced to go elsewhere in order to stay employed.
Then your money will be arbitrarily assigned to someone else at the firm-someone who you may not feel comfortable with.
An advisor who gives the “right”answers to these questions is not necessarily the best person for you to work with, but those who cannot answer these questions satisfactorily should generally be avoided.
Asking these questions can therefore help you to find the advisor who is right for you.