There are some easy steps to follow in hunting for a financial advisor.
Once you’ve decided to get financial advice, it’s time to look for the right person for the job. Where you look — and the advisor you choose — will depend on your goals and the kind of relationship you want to develop. But there’s no lack of choice.
Some advisors help you define your financial plan and then refer you to other professionals to put the plan into action. Others specialize in buying and selling financial products you select. And still others are involved in every phase of your financial life.
While the selection process may sound like a lot of work, it really isn’t. A good way to begin is by making a list of people to consider for the job:
- Registered Investment Advisors (RIAs), whose employees provide investment advice and planning.
- Registered Representatives (RRs), better known as stockbrokers, who buy and sell on your behalf and recommend investments
- Certified Public Accountants (CPAs), especially those with the Personal Financial Specialist (PRS) certification
- Financial planners, especially those that have Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC) credentials
A call’s the way
You can telephone each of the people on your preliminary list, explaining that you’re looking for a financial advisor. The tone of the conversation and the kind of information you’re given can help you decide whether to schedule an interview.
Seven warning sings
Be wary of any advisor who:
- Guarantees you’re going to make lots of money
- Insists that an investment has little or no risk
- Doesn’t arrange for you to receive official statements showing the current value of your investments
- Advises you to put all of your money in one type of investment or pressures you to act quickly
- Recommends investments you don’t recognize and doesn’t try to explain them clearly, or says they’re too complicated for you to understand
- Argues with or ignores your instructions
- Is vague about the amount of commission or fees he or she will earn
Registered advisors
Anyone who gets paid for providing investment advice must register as an investment advisor, either with the Securities and Exchange Commission (SEC) or with his or her state securities agency. The exceptions are people, such as stock brokers, who provide advice about trading a specific security.
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Registered advisors file Form ADV Part II, which contains a summary of their background and fees. If your prospective advisor is registered, you can ask to see his or her full form by calling the SEC Public Reference Branch (202-942-8090) or going to SEC website. Part I of the ADV reports certain disciplinary actions against the advisor, but not current complaints, if there are any.
To sell securities, an advisor must be licensed as a registered representative. To get information from FINRA BrokerCheck about any registered representative, you can call 800-289-9999.
Qualifications to look for
Just as you would with any person you plan to hire, determine the qualifications your advisor must have.
| Experience | While new advisors deserve a chance to prove themselves, they don’t have to learn at your expense. Make up your mind that anyone you’re paying for advice has to have time on the job.
Five years is a reasonable minimum, as is experience working with people whose professions, incomes, or lifestyles are similar to yours. The newer you are to investing, the more important an experienced advisor may be. |
| Reputation | Any advisor you’re considering ought to have a good reputation. Referrals from people you trust are important, especially other professionals.
You also can and should check out the advisor at the federal or state level. Information is available from the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA), or your state securities regulator. You can find a list of regulators at the website of the North American Securities Administrators Association. |
| Affiliation | Since well qualified advisors may work independently, for a local firm, or as part of a large regional or national organization, you probably won’t end up judging an advisor strictly by his or her affiliation.
Experts don’t agree on which affiliation provides the strongest resource. Some point out that large companies provide superior training programs, supervision, and access to research. Others advocate smaller firms where an advisor may be more likely to offer independent advice. They all agree that a proven track record for the person or the firm is critical. |
| Compatibility | You’ve got to be confident in your advisor’s skills and feel comfortable working together. Those are judgments you can usually make accurately based on a face-to-face meeting and follow-up communications.
Some of the things you may find important are building a strong bond with an advisor, being encouraged to ask questions, getting clear explanations about investments and investment costs, being listened to and taken seriously, and being treated with respect. |
| Expertise | Can you imagine buying glasses from your dentist or letting your travel agent fix your car? The same respect for expertise is important in managing your financial affairs. Your advisor may suggest you consult a CPA, for example, or a retirement planning specialist. He or she can recommend a broker to buy and sell stocks. Expertise does cost money. But it can make a big difference in carrying out your plan. |
Conducting an interview
Ask better questions to get better answers. An interview can make or break any business relationship — especially one that depends on the interaction of advisor and client. But you have to know what you want to find out before the interview starts. And you need a clear sense, afterward, of what was said and promised.
Make a list of questions
Make a list of the questions you want to ask — and be sure you ask them. You don’t want to be so distracted or nervous that you miss the information you’ll need to make a decision. Here are some basic questions you might want to include in each interview:
- What experience do you have, and what is your educational background?
- What types of investments do you sell the most?
- Who are your typical clients, and what kinds of investments do most of them make?
- How will you help me plan for my retirement (or other goals)?
- How often will you review my plan?
- How will you keep me up to date on my investments?
- What continuing services will I get, and how much can I expect to pay each year?
- How are you paid for the service you provide?
- How are your fees calculated?
- What are your ideas about how someone like me should be investing?
Take notes
Don’t forget to take notes during the discussion. They’ll help you remember what’s said — and the very act of taking them may encourage more precise answers.
Two-way street
Interviews are conversations, not performances. The more you know about your goals and your current financial situation, the better you’ll be at discussing what you need. And the more eager a qualified advisor will be to work with you.
Evaluate and choose
Prepare a summary of your impression right after the interview and keep it with your notes. The summary will be especially helpful if you interview advisors over several weeks. Check each advisor’s credentials.
You may find that your decision is obvious, even before you’ve finished the search. Or you may have to draw up a balance sheet to choose between two candidates. If it’s that close, you may find that the reputation of the advisor’s firm tilts the scale in one direction or another. Here are some questions you might want to ask yourself as part of the decision process:
Did the person I interviewed
- Treat me with courtesy and respect?
- Listen carefully to my questions and answer them candidly?
Did the person find out about me as an investor by
- Asking what my financial goals are?
- Asking about my income and assets?
- Discussing my tolerance for risk?
Creating a team
As an investor, you may want to consider putting together a team of professionals that includes people with different areas of expertise and different sets of credentials.
For example, you may want to work with a Registered Investment Advisor (RIA) or Registered Representative (RR) plus an accountant to handle tax matters and a lawyer who specializes in trusts and estates. They may or may not know each other, but they should be able to confer on issues where their expertise overlaps, such as whether or not to take additional capital gains or losses in the current tax year or move certain assets into a trust.
In some cases, advisors with different skills form their own networks. But if one professional refers you to another with whom you aren’t comfortable working, you shouldn’t hesitate to ask for another recommendation or substitute someone of your choosing.
Team effort
Investment groups need financial advisors, too. If you’re in the process of setting up a group, you should put together an interview committee to meet with prospective candidates and make recommendations to the whole group. You’ll want to ask most of the same questions you’d ask if you were looking for investment guidance for yourself. In addition, discuss the advisor’s experience in working with groups, especially groups of women. Among the things you might expect your advisor to provide are seminars on specific topics, as well as investment strategies and specific recommendations for implementing them.
When the client is a group, it’s also critical to decide from the start who will give the buy and sell orders, and who will act as liaison to the advisor.
The value of advice
There are good reasons for seeking professional investment advice, just as there are good reasons for consulting a doctor or a lawyer when you need medical or legal assistance. Financial advisors can help you define your financial goals and estimate how much money you’ll need to meet them. They can also explain how different types of investments have performed in the past, since that’s an indication — though not a promise — of how they may do in the future. Past performance can be a factor in helping you to decide which types of investments are best suited to your goals.
Another advantage of working closely with a financial advisor in making investment decisions is that you’ll have help coordinating your various accounts. These might include taxable, tax-deferred, and tax-exempt portfolios or the investments that you make individually and those you and your spouse or partner are making together.
How To Choose Financial Advisor? [Complete Guide] by Inna Rosputnia
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