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Randall Financial Group News

15-Oct-04

Find a Financial Advisor

There are more than 3 million people in the United States that consider their occupation to be financial advisor. The problem is that despite the numbers, finding a good advisor is not easy. The reality is, many of the people that call themselves financial advisors are either not that good or are not really advisors. They often don’t have the appropriate skills and training or just use the title on their business cards because it sounds better than stock broker, insurance agent, or sales person. Being a financial advisor is a profession, but using the title as a sales tool is all too common. So how can you sort through a maze of financial advisors, consultants, and planners to find the person that is right for you? As always, by getting educated and doing your home work.

Before you even begin to contact prospective advisors, think about what types of services you’re looking for. Do you need help with a budget, investments, taxes, or insurance? Are you looking for someone who will put together a complete “financial plan” spelling out what steps to take in order to prepare for retirement or sending a child to college? Maybe you’re looking for someone to help you invest a 401k rollover from your former employer. Do you need someone to set up the account so you can manage it yourself or do you want someone to select and monitor the investments for you? Having a clear idea of what you want from your advisor will make the search much more effective.

Next, make a decision about how you want to pay for these services and I don’t mean cash, check or charge. I mean commissions versus fees. Many people are under the mistaken impression that if their advisor is paid through commissions, it doesn’t cost them anything. The truth is all good advice costs money and bad advice costs even more. Commissions come directly out of your pocket in the form of higher investment expenses and longer time commitments. The problem with commissions is that they are only paid when you make a purchase. Many commission based advisors give advice only if it involves a sale. In addition, commissions are not often disclosed to a client so it’s hard to tell what the advisor is earning. This is particularly true for annuities and life insurance which tend to have some of the highest commissions around. Despite these drawbacks, commissions are sometimes the most economical way to pay if you’re just starting out. And, with few exceptions, they are the only alternative when it comes to buying life insurance.

Paying a fee to your advisor can take many forms. Typically the fee is an hourly charge, a fixed annual retainer fee, or an annual fee based on the size of your portfolio. With any of these arrangements, the expectation is that you would be paying the advisor directly for their services. The advantage to this arrangement is that the fee is fully disclosed. Also, the advisor does not have to sell you something in order to get paid. Most advisors will have very distinct opinions about the best way to go, but the bottom line is disclosure. Any advisor should be happy to explain how and how much you are paying to do business with them. If they decline to explain in detail or say that is won’t cost you anything, then you should head for the door.

Once you’ve decided on the services you need and how you want to pay then it’s time to find some candidates. Try to find three potential advisors who meet your initial criteria. Talking to fewer will not give you a full picture and talking to more is a waist of everyone’s time. Start by talking to your friends, family and other associates. Ask people with similar backgrounds to yours who they use. Ask them what types of services they have received and if they’ve been satisfied. You could also ask other professionals like your attorney or accountant who they would recommend. Another referral source is the Financial Planning Association website. The FPA is the national association of financial planners and they offer a referral website which will recommend Certified Financial Planner designees in your area. The website will also give you information on their background and the type of work they do. You can check out the website at www.fpanet.org and click on “find a planner”.

Once you have some candidates you’ll want to set an appointment to meet. Most should offer a complimentary initial consultation to discuss your situation and ask questions. At that meeting you’ll want to get some specific information. Start with qualifications. What is their professional background? Do they have formal education that is appropriate to their field? What about certifications. Many organizations offer training and certifications that are relevant to financial planning and indicate expertise. The most common of these is the Certified Financial Planner or CFP designation which requires study in five topic areas as well as three years of experience in the field and adherence to a code of ethics. Other well respected designations include the Chartered Financial Consultant or ChFC, Certified Investment Management Analyst or CIMA and the Chartered Financial Analyst or CFA.

Another question should be how long they’ve been in the business. There is no substitute for experience and you do not want to be the client that they learn on. Have them explain their process. If you hire them, what will they do and how will they do it? Ask them about how they are compensated and make sure it fits with how you’re comfortable. Ask about their client base. Do they work with clients and situations similar to yours? Finally, consider you personal rapport. Do you like this person? Do they listen to your questions and concerns? Do you feel sales pressure to commit right away? It’s important that you feel comfortable with your advisor. If not, then your relationship will not last.

After meeting with your three candidates you’ll have an idea of which one is most appropriate. If not, then start again with a new list. Once you’ve settled on someone then it’s time for some checking. The first thing is references. The advisor should be happy to give you the names of current clients that have backgrounds similar to your own. Call them and ask about their experiences. If the advisor can’t provide references or the references are less than enthusiastic, it’s time to move on. The last thing is to check their compliance background to see if they’ve ever run into regulatory problems. You can check the National Association of Securities Dealers website at www.nasdr.com and click on BrokerCheck. If the advisor is registered with the NASD, any complaints made against them by clients can be found. If the advisor is a Certified Financial Planner designee you can go to www.cfp.net and click on search. Here you can verify that the advisor is really a CFP designee and whether or not they have had any complaints filed against them.

Assuming the referrals were positive and the background checks came back clean, you can be confident that your choice is a good one. Today’s financial world is more complex then ever and it falls upon all of us to make the right decisions for our future. A trusted advisor can be a valuable ally in helping you achieve your financial goals. By doing your homework and some research, you can find the one that’s right for you.

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