How to Select a Financial Advisor

Steve Davis' second part on financial advisers.

You remember what it felt like when your friends were outside playing in the sun and you were stuck inside doing chores for mom and dad, right?  Well, if that’s how it feels when you’re sitting down to do your financial plans, it may be time to hire a financial advisor.  In part 1 of this series we looked at .  In this column, we’ll explore the process of choosing the best financial advisor for you.

The absolute most important step is to find someone you can trust.  But selecting an advisor takes more than that; just ask anyone who has listened to their stock-punting uncle and later regretted it.  Not only is trustworthiness important, but so too is competence.  Integrity without competence is no bargain so here are some tips to help you find a good financial advisor.

Experience:  I don’t know about you, but with matters that are important to me, I’m not comfortable letting a rookie practice on my family.  An advisor should have an appropriate level of business experience.  Would you be comfortable hiring a financial advisor who was partying in his college frat house when the 2008 market crash occurred?  Or even the dotcom crash in 2000?  Advisors who have not experienced at least two market cycles probably don’t have enough perspective.

Education:  Anyone can hang a shingle as a "financial planner" so determine what qualifies that person to offer financial planning advice.  A good place to start is to find a professional who holds a recognized financial planning designation such as a CERTIFIED FINANCIAL PLANNER™ (CFP).  A CFP has passed a rigorous test administered by the Certified Financial Planner Board of Standards on topics ranging from investments and insurance to tax, estate and retirement planning.  CFPs must also commit to continuing education and a code of ethics in order to maintain their designation.  The CFP credential is a good sign that a prospective planner will give sound financial advice, but even those who pass the exam may come up short in other areas.

Compensation and Independence:  An advisor should clearly tell you how he or she will be paid.  This is typically done through commissions and/or fees.  If your advisor is exclusively commission based make sure he is not a thinly-designed salesman who is incented for pushing a company’s product.  Instead, find an advisor who can help you choose unbiased financial products from many of the nation’s leading investment managers, not just those offered by his employer.  If your advisor is compensated by charging fees, ask whether the fee is based on a percentage of the assets he manages for you, or whether he is charging an hourly fee.   Beware of the “full financial plan for a flat fee” option.  These plans are sometimes long on glossy pages and charts, but short on specific advice for your unique circumstances.  Additionally, these flat fee plans often offer no guidance on how to implement the recommendations and often fail to provide ongoing service as your situation evolves over time. 

Communication:  You can learn about an advisor’s communication skills by interviewing them, checking out their website, attending a seminar they conduct, or by reading the articles they write.  A good financial advisor is one who communicates clearly and the best advisors are the ones who are able to make the complicated easy to understand.  Sadly, it seems some financial planners try to impress (or intimidate) clients by using technical jargon that isn’t understood.  If you can’t explain in your own words what the advisor is recommending, don’t ever proceed! 

Background Information:  In the wake of the Bernie Madoff scandal, the importance of due diligence has become clearer than ever.  Ask prospective advisors if they have ever been subject to disciplinary action.  Several government organizations, such as the Financial Industry Regulatory Authority (FINRA) and your state insurance and security departments maintain records on the disciplinary history of financial planners and advisors.  This information is in the public record and can easily be checked.  If there is anything that makes you uncomfortable, go elsewhere. 

Likeability:  When you’re done interviewing potential advisors, you should be able to ask yourself one last question – Do I like this person?  Hire people you like.

The Benefits of Hiring a Financial Advisor

Managing your personal finances is ultimately your responsibility but you don’t have to do it alone.  If you don’t have the time, interest or inclination to handle your own financial plans, hire a qualified professional, such as a CERTIFIED FINANCIAL PLANNER ™.   Together you’ll be able to identify your goals and manage your finances so that you can work toward making the most of your financial resources while also trying to avoid common mistakes.  In the end, you want to find a professional that is trustworthy, competent and likeable.  In other words, you want to select a financial advisor who is right for you.

About this column:  Steve Davis is a local CERTIFIED FINANCIAL PLANNER ™ who has been helping clients for more than twenty years.  You can find out more about Steve and his company, Davis Financial at www.talkwithdavis.com

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Securities offered through LPL Financial  Member FINRA/SIPC



Tex June 06, 2011 at 01:35 PM
Here’s someone worse than Madoff. Read the information at this link and forward it to everyone you know, so they don’t get scammed: http://texsquixtarblog.blogspot.com/2009/04/who-is-worse-bernie-madoff-or-rich.html


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