Entrusting someone with your savings and investments is never an easy thing. This is why it is critical that you do your due diligence when selecting a financial advisor or financial planner and that you feel comfortable with not just the person but the company.
Here are 7 things to consider when making your selection.
(1) Educational Background
When it comes to the world of investment management and financial planning there are Advisors and then there are Advisers. What is the difference? Not much. The spelling may be different but the meaning is the same. Both can be used to describe a person who provides financial advice. The real question is whether the Advisor or Adviser has the educational background your need so he or she can provide you with sound advice to help you make the right financial decisions. Unfortunately, in many cases Advisors are simply salespeople with very little background in finance, investing, or financial planning.
Just like you would not want a Doctor performing surgery on you who only had to take a three day course on surgery, you would not want to put your trust on someone who only took a sales course, or a three day course on managing your money.
You want to look for someone who has spent considerable amount of time understanding and staying abreast of complex investments and financial planning issues. How do you do this? Look for someone who is accredited in their field of work and whose accreditation requires continuing education.
The best way to start is to look for a CFP®. This is a person who has to meet education, examination, experience, and ethical requirements. Read more about requirements here
There are many other certifications out there but the CFP® certification has some of the most rigorous requirements.
What to Ask: What is your educational background and what credentials do you have? Do you have to do any type of continuing education to retain your certification?
The years of experience as well as the quality of experience your Advisor has matters. You want to make sure that your Advisor has a minimum number of years of experience and that he/she stays in touch with changes in the industry that may impact your investments, taxes, estate planning and insurance.
What to Ask: How many years of experience do you have providing investment or financial planning advice? How do you and your team stay current with industry changes?
(3) Company Size
The size of the company has to fit you. Smaller firms tend to have a more client centric approach and more individualize and specialized service. Larger firms may provide more of a brand but less personalization for what they consider small accounts (<1 million in assets). At the end of the day you have to feel confident that you are getting the best advice and service you deserve.
What to Ask: How many clients do you work with? Am I going to be the smallest /largest client?
(4) Advisor Compensation
This is important because it tells you a story on how the Advisor is incentivized. If the Advisor receives commissions by selling products what do you think the Advisor will do? Sell you products! (that you may or may not need). Commissions and sales incentives work for the companies and for the Advisor but they rarely workout for the clients’ best interest.
You want to look for an Advisor that is paid by you alone so he/she is only accountable to you. Find a fee-only advisor. This type of advisor only receives compensation from you. If you are not happy his/her fees will not grow.
Beware, there are fee-based advisors (sounds similar to fee-only) who receive commissions from product sales and also receive fees from clients. Make sure you ask any potential advisor about their compensation structure and how their compensation may impact the advice you receive.
What to Ask: How are you compensated? Do you receive any form of commission or fees from other sources other than your clients?
(5) Investment Philosophy
How your money will be invested is critical. You have to believe in the Advisor’s investment philosophy or things will go south really fast. If you believe in day trading and you choose an Advisor that has a passive approach to investing you will be very frustrated. You will be equally frustrated if you want a more passive approach to investing and your Advisor wants to constantly trade or change strategies in your account. Make sure you ask a lot of questions about the Advisor’s investment philosophy before you commit.
What to Ask: What types of investments do you use? How often are changes made to my portfolio and what is the rationale for these changes? Remember to ask if your Advisor is compensated for trading in your account.
This may seem like a trivial matter but it’s really not. You have to enjoy working with your Advisor as this will create trust and hopefully a long term relationship. Here are some examples that may suggest there is a personality mismatch or an even deeper problem:
- You can’t understand what your Advisor is saying (@#$!^*&^%!) and they don’t make the effort to help you understand
- Your Advisor speaks over your head (it’s on purpose so you don’t ask questions they can’t answer)
- When you ask a question, your Advisor dismisses it as if it were a stupid question
- If you don’t call him or her you never hear from them
- Your Advisor forgets that it’s your money not theirs
What to Ask: Here, it’s not an issue of what to ask but rather how your Advisor makes you feel. From the first meeting you should feel comfortable asking questions and understanding the answers. You should also feel that you can call your Advisor without thinking twice about it.
(7) Service Approach
No one likes to feel like a number so make sure you won’t be one. Find out in advance who will be your ongoing contact and how your account will be serviced.
What tends to happen in some institutions is that you initially speak to one person and then get handed off to a team or to a completely different person. You may be left wondering, was your Advisor just a sales person? Or is your account not important?
What to Ask: Ask your Advisor if you will be able to contact him/her in the future. How often can you contact them? Who will handle your requests?
We hope you have found this content useful. It is important that you feel at ease with your Advisor and that you know that he or she is doing what is best for you.
Looking for a financial advisor in South Florida area, consider speaking with one of our CFP(r) professionals today.