How to Choose a Financial Advisor

Trusting your finances to a stranger is difficult.  But whether it’s for income taxes, estate planning, insurance coverage, or basic family finances, most people will, at some point, benefit from the advice of a financial advisor. Here’s how you can select someone who’s trustworthy and knowledgeable to help you with your specific financial needs:

Know what you want – List and prioritize your financial needs and goals – retirement, college planning, investing, etc.  This will help you define your problem precisely and narrow the selection of planners to those areas of expertise.  And the more specific your goals, the less time (and money) you’ll spend working with your planner.

Seek referrals – Referrals from family, friends, or professional associates such as a banker, lawyer, or tax advisor can often be a good source of finding trustworthy and reliable financial counselors.  You may also get listings from the National Association of Personal Financial Advisors, the Financial Planning Association, the American Institute of Certified Public Accountants, or the National Association of Enrolled Agents either by mail or on the Web.

Set up an interview – Once you have a list of potential advisors, reduce the list to two or three and make appointments for in-person interviews.  (The first hour should be free.)  Prepare in advance with a summary of your financial situation so the planner can get a good sense of how he can help you.  During the interview, be sure to ask the following questions:

• How long has the financial planner been doing business in this location/town/area?  A professional with five years or longer in the area will have established a good (or bad) reputation.
• Who are the main clients this planner serves?  Are they people like you, with similar needs and income levels?  Get the names of three clients you can call for references and ask them the pros and the cons of their planner.
• What is the planner’s investment philosophy (conservative, aggressive, mixed)?  Make sure it’s consistent with yours.

Request the ADV Form – Every investment adviser is required by law to file this form with the SEC or state security agency.  In it, you will find how the adviser gets paid (avoid advisors on commission); information on other incentives to which she is entitled; educational and business background (including special certifications such as Certified Public Accountant (CPA), Certified Financial Planner or Advisor (CFP or CFA) which show the planner has had additional education and training); and investment methodology. If the individual provider or the firm does not have the ADV Form, then choose another planner.

Select the right planner for you – You’ve done your research, now, you need to choose.  Besides meeting your objective criteria, you’ll want to select a planner with a disposition you can work with and trust.

These steps may take some time and effort, but the safety of your financial health is worth it.  For a little investment of time, you will be rewarded handsomely – by finding the right person to help you achieve your financial objectives.

Comments

[thc]

You're way off on the ADV. Only RIAs who manage funds on a discretionary basis file an AVD. Most financial advisors don't work this way and do not file an ADV.

Also, while most of the work I do is on a fee basis, sometimes commissions for transactions really is the most economical for buy and hold investors.

[jk]

You're off base on getting references as well. No financial advisor in his right mind would give out his clients' contact information to anyone because 1) you must protect all your client's personal information and 2) it's just not an ethical thing to do.

[FMF]

JK --

You're wrong. Professionals regularly ask clients if they wouldn't mind being references. The clients agree and then prospective clients are then referred to them as needed.

I have been on both the asking and receiving end of this arrangement, so I know it exists.

[PEP]

Ok, it's a comment from THC in 2005 who says that you are "way off on the ADV". Sorry THC, he isn't. Any and all registered investment advisors are required to file a Form ADV with the State or the SEC. If you can make a commission, advisors can't by the way, then you are a registered representative/broker with a broker dealer. You may call yourself an advisor, but you are held accountable by FINRA and your Broker Dealer to represent the broker dealer, not the client. If what you SELL is suitable, then you are free from liability. Advisors are fiduciaries and held responsible for the appropriateness of their recommendations. They can offer something that is suitable, but still be liable if it is not appropriate. Even if you choose to be an Investment Advisory Representative of your firms RIA, you are still serving the client as a broker whenever you make a commission.

Oh, non discretionary advisors also have to file a Form ADV. If you are charging a fee for invesment advice or management, you have to file a FORM ADV.