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How to Find & Choose a Financial Advisor – 7 Things to Consider


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Choosing a financial advisor is one of the more difficult tasks that a person will make. If the choice is made correctly, the benefits are incalculable. But if the choice proves to be wrong, the results can be disastrous for you and your family.

The following tips are intended to help you identify, evaluate, and choose a financial advisor that is familiar with the problems you face as an investor and can help you achieve your financial goals. With his or her knowledge of your personality and risk profile, your advisor can guide you safely through the morass of choices to those most likely to lead to success.

Factors to Consider When Selecting a Financial Advisor

The risk of choosing the wrong financial advisor is not that he or she will intentionally steal your money, but will lose it through carelessness or ineptness, or by misunderstanding your investment needs. For these reasons, it is important to do your own due diligence to determine which advisor can best address your goals. Are you interested in advice to plan your estate, invest your savings, or protect your property against risk?

Many people have a variety of financial needs, not all of which can be addressed at the same time, and even some that appear contradictory. By keeping the following tips in mind, your odds of selecting the best advisor for your unique situation vastly improves.

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Pro tip: SmartAsset has a tool where they will ask you a few questions and then match you with three financial advisors so you can determine who will be the best fit for your individual needs.

1. Understand Your Own Financial Needs

There are a number of reasons to use an advisor, including starting a business, retiring, borrowing funds, receiving an inheritance, buying a home, getting a divorce, or marrying. Whatever your reason, you should be aware that advisors have a wide variety of expertise, experience, and capabilities, and not every one will be suited to you.

Before selecting an advisor, you should first identify, prioritize, and document your financial goals. By clearly expressing your needs – including the amount of capital you expect to invest, the amount of risk which you are willing to sustain, and your financial objectives – you can better select the advisor that is right for you.

The services provided by financial advisors include the following:

  • Money Management. The first axiom to building a financial portfolio is spending less than you make. Unfortunately, budgeting has become a lost art for many American families. As a consequence, they fail to save, and often find themselves with burdensome credit card debt and delinquent loans. The right advisor can help you decide where to spend your money optimally so that you can save for a rainy day, future educational expenses, and retirement. The foundation of a significant net worth and a secure financial future is an effective budget (if you don’t have a budget set up, you can do so with Personal Capital).
  • Investment Management. Investment management is important, whether you are saving for your future retirement, the educational cost of your children, or a legacy bequest at death. Your results will depend upon the money you invest, the types of investments you make, the rate of return you receive on those investments, and the length of time the investments remain in place. Additional variables that affect your investment portfolio are the income taxes that you pay and the rate of inflation that will affect your future purchasing power. There is a plethora of different investments available, each of which provide a unique combination of potential reward and risk, liquidity, minimum investment, and even tax treatment. A financial advisor can help you select investments that best serve your needs consistent with the risk you are willing to sustain. However, you should be aware that few financial advisors are experts in every possible investment type. As a consequence, it is important to understand which investment types are best known to each potential advisor. Having this information can ensure that you select an advisor who is best suited to meet your needs and investment parameters.
  • Tax Planning. Unfortunately, income and estate taxes negatively affect the accumulation of assets and, consequently, the level of income you might receive in the future. Tax laws are constantly changing, tax brackets and rates constantly vary, and tax deductions and credits that can reduce the amount of taxes paid are constantly being revised. Being a successful investor requires knowledgeable tax planning. Some financial planners are tax experts; others rely upon third parties for tax advice. If you pay taxes in one of the higher tax brackets or are likely to receive income that will be subject to a higher tax bracket, you should choose a financial advisor whose expertise includes tax planning.
  • Risk Management. Humans and their property are constantly subject to risk of loss from various forces. Premature death, extraordinary healthcare expenses, and unanticipated liability are just a few of the perils we face every day. A good risk manager can help you identify, quantify, and manage the risks in your life. The advisor’s experience can help decide whether to transfer the risk by purchasing insurance, or reduce its impact and/or likelihood of occurring via asset diversification or other measures.
  • Estate Planning. At the end of life, many people wish to transfer as much of their property as possible to specific beneficiaries with minimal time delay and expense. Knowledge of estate laws and probate administration is essential, though a good financial planner may work with an expert in this field rather than focus on it by him- or herself. Required documents in preparation for death usually include a combination of wills, trust instruments, special bequests, gifts prior to death, and letters of instruction. A good financial planner should have an understanding of federal estate and gift laws, as well as any state laws that would affect transfer of assets from the deceased party to another.
Understand Own Financial Needs

2. Qualifications

Many financial advisors previously worked in another career before entering the financial field. In some cases, their experience is beneficial; in others, their experience is unrelated to their current occupation. Generally, people who provide financial advice for a fee or sell financial products are required to have federal or state licenses or independently issued credentials as evidence of their qualifications to provide financial advice.

When interviewing advisors, be sure to check the following:

  • Licenses. Registered representatives of stock brokerage firms and salesmen of mutual funds are regulated by the Financial Industry Regulatory Authority (FINRA) and the North American Securities Administrators Association. The Securities and Exchange Commission regulates registered investment advisors, and government departments of the 50 states regulate and license advisors such as lawyers, accountants, and insurance agents. Before engaging financial advisors, confirm that their license (or licenses) was properly issued and remains in effect with your state’s regulatory agency. Also, check to see whether the advisor has been subject to consumer complaints, regulator action, or lawsuits.
  • Credentials. It is amazing how often the average person is willing to simply accept a paper document or personal statement as proof of accomplishment. While most advisors are honest, it’s always best to be safe. If your prospective advisor has an industry designation, verify this with the issuing authority. Confirm the training that he or she received, and, while you’re investigating, ask about any complaints that the authority may have received about the advisor.
  • Referrals. Nothing suggests future success like past successes. Ask potential advisors for at least three references from satisfied clients. Ideally, the advisor will have served any referred client for at least two years, long enough for recommendationsto be implemented. Ideally, the clients and you will be in similar life situations. Contact each references and ask them open questions, such as:
    • “What do you specifically like about him or her?”
    • “What don’t you like?”
    • “Is he or she a good communicator? How often doe you talk or visit with him or her?”
    • “Does he or she listen to your concerns and answer your questions?

3. Expertise

Most financial advisors specialize in one or two specific areas of financial advice, and seek the counsel of other advisors when questions outside their training comes up. For example, a certified public accountant (CPA) might focus on money management and tax planning, an attorney on estate planning, and a chartered life underwriter (CLU) on insurance and annuities. A certified financial planner (CFP) is required to be familiar with all areas of financial advice.

The lack of expertise should not preclude the use of an individual unless it directly affects success in those areas most important to you. For example, if your primary interest is in buying and selling stocks and bonds, you would probably choose a registered investment advisor (RIA) or a registered representative of a stock brokerage firm, and not a CLU or CPA.

4. Experience

Since many advisors become financial advisors as a second career, age or looks do not represent experience. It is always appropriate to ask how many years a potential advisor has worked in the field, but you should also remember that everyone has to start. Desire, intelligence, and responsibility can make up for experience in some cases if you know the expertise is available.

5. Cost

The combination of fees, commissions, and other costs can turn a great return into a mediocre one. Some financial planners charge a flat fee based upon time or asset value, while others collect commissions based upon the products purchased for your portfolio. The fact that your advisor collects a commission should not be an indication that his advice would be biased, since the key to a successful long-term career is maintaining a cadre of clients over years. Furthermore, it is likely that you will pay commissions or fees to others, even if your financial advisor is collecting a fee.

Selecting an advisor who is compensated with commissions eliminates some of the cost of advice. You should be concerned with the following:

  • Transparency. How and how much an advisor will be paid should be disclosed to you prior to engaging in any transaction, as well as any potential conflict of interest that might arise from his or her recommendations. A good advisor is not reluctant to discuss compensation.
  • Track Record. When you review an advisor’s past results or your own results in the future, you should use “net” results after deductions for all fees, commissions, and cost. For example, if your stock portfolio is up 5% for the year, but you must pay the advisor a 2% annual management fee, your net return is 3%.

6. Compatibility

How many times have you discussed the poor bedside manner of your physician? While a medical doctor deals with your health, a financial advisor works with your money – and both are among the more important elements of a happy life.

If you do not like or respect your advisor, it is probable that you will be less candid with him or her about your financial concerns or expectations. Many of the advisor’s recommendations are likely to be unfamiliar or involve investments of which you have little knowledge.

It is extremely important that the advisor has a personality and manner that makes you comfortable, as well as the patience to answer questions until you are satisfied. While a single personal meeting doesn’t guarantee an accurate assessment of another person, it can allow you to form a more thorough impression than what the Internet and a phone conversation can provide. A person using an online dating service would not marry his or her matched partner without a face-to-face meeting – and nor should you turn over your financial future to a virtual stranger without testing your online perceptions with a face-to-face encounter.

Respect Your Advisor

7. Trust

The trustworthiness of a financial advisor is an absolute, nonnegotiable element in a financial advisory relationship. You simply cannot afford to work with individuals who are unethical or lack integrity, as the clients of Bernie Madoff, Alan Stanford, and other scam artists have discovered. Remember, working with an advisor is akin to taking lion training lessons from someone standing outside the cage: the risks are all yours. If the advice is bad, the lion eats you, and the advisor finds another client. In some cases, the advisor is more dangerous than the lion.

If you have any worries or any nagging suspicions that something is not right, do not proceed to an advisor-client relationship. Either keep asking questions until you are comfortable, or find another advisor.

Final Word

If you follow these tips in electing a financial advisor, you are more likely to discover an ethical, competent, experienced advisor who will keep your financial interests utmost in the relationships. Some financial advisory relations continue for decades to the satisfaction and pleasure of both the client and the advisor.

Remember that you work too hard and for too long to give up your financial future to a virtual stranger. It is your money, and spending the effort and time to pick the best advisor is the best way to protect it.

What else should be considered when searching for a financial advisor?


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Michael R. Lewis is a retired corporate executive and entrepreneur. During his 40+ year career, Lewis created and sold ten different companies ranging from oil exploration to healthcare software. He has also been a Registered Investment Adviser with the SEC, a Principal of one of the larger management consulting firms in the country, and a Senior Vice President of the largest not-for-profit health insurer in the United States. Mike's articles on personal investments, business management, and the economy are available on several online publications. He's a father and grandfather, who also writes non-fiction and biographical pieces about growing up in the plains of West Texas - including The Storm.