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Packaging Horizons
Securing a Good Financial Advisor
A little homework will go a long way toward finding a reputable and compatible financial advisor.
By Christopher L. Hayes, Ph.D.
This column considers an invaluable resource: the tools needed to find a financial advisor. You may be thinking, "In this day and age, when I can buy and sell stocks myself over the internet, why do I need a financial advisor?" The answer has always been the same: At some point in your financial dealings, you will need advice. Enlisting the help of a professional will work to your advantage.
A good financial advisor can be a life-long partner who:
- Listens to your needs and goal
- Assesses what you have and what you'll need for the future
- Develop an appropriate financial strategy that meets your goals
- Helps you understand the risks and rewards of investing
- Makes certain your portfolio is diversified
- Monitors your portfolio and communicates with occasional meetings/phone calls
- Conducts a regular review of your investment goals
Take your pick
There are generally two types of financial advisors. You must understand the difference in order to most effectively meet your investment needs. One type is a stockbroker, who may be referred to as a "financial counselor" or a "financial advisor." In fact, some stockbrokers are indeed certified financial planners (CFP).
Some stockbrokers emphasize selling you financial products, hoping that they will meet your objectives. Others will realize that to do a good job, they need to develop a financial plan tailored just for you. You will be happier with the latter.
The second type of financial planner may work for a bank, represent an insurance company or be totally independent. Those who are on staff with a financial company--a bank or an insurance agency, for example--may be salespeople of mutual funds, insurance or annuities who have received special training in order to advise you on the broader financial picture.
Independent financial planners often charge on a fee-basis only. Some investors prefer to seek advice from independent financial planners because they have no affiliation that might influence their recommendations. Before choosing whether to use a stockbroker or a staff/independent advisor, it is imperative that you gain further information on both types of advisors.
Know your ABCs
Financial planners and advisors come with a variety of credentials following their name. While, ultimately, the person you use should be someone knowledgeable who demonstrates concern for your specific situation. Prior to selecting any financial advisor, make sure you understand the designation behind the name. These letters can tell you a great deal concerning the training of the professional. Following is an explanation of a few of the more common designations:
CFP: The Certified Financial Planner designation is earned by people who have passed a rigorous certification exam and have proven their expertise in all aspects of financial planning. The license is granted by the International Board of Standards and Practices for the Denver-based Institute of Certified Financial Planners.
CFA: The Chartered Financial Analyst designation is granted by the Financial Analysts Federation to those who have demonstrated expertise in investing. Many CFAs now offer full-service financial planning services.
ChFC: The Chartered Financial Consultant designation is awarded by the American College in Bryn Mawr, PA, to those who have passed certain courses and maintain high ethical standards.
CLU: The Chartered Life Underwriter designation also is bestowed by the American College in Bryn Mawr, PA. The CLU is the to credential for life insurance agents.
What to ask
Interview a variety of advisors before selecting the one that is right for you. If you feel your current advisor is not meeting your needs, start from the beginning. Meet face-to-face with at least three recommended advisors that you get from friends, family members or colleagues at work.
During the interview, tell a bit about yourself and explain your financial needs. Then ask the following questions:
1. Do you work with clients whose backgrounds are similar to mine? If the person doesn't, you don't want to be a guinea pig.
2. What is your area of expertise and how long have you been in business? Ideally, you'd like to find someone who has had experience with up and down market situations.
3. Are you willing to take the time to teach me about different investment options as we proceed? Make it clear that you want to be part of the decision-making process; some advisors would prefer to work with only experienced investors. However, keep in mind that one financial advisor can not meet all your educational needs.
4. What is the your savings and investment philosophy? Find out if it dovetails with your own.
5. Generally, how often do you call clients? A good advisor will promise to be in touch, but will also make the offer that you can call anytime.
6. Could you explain your compensation process to me? Do you earn higher fees on some investments than on others? Ask up front so you'll know what to expect. Ask how your advisor gets paid.
7. How often will you review my portfolio or investment? Is there a standard procedure for an annual review? You want reassurance that there will be follow-through after the initial financial plan is developed.
8. Could you show me a financial plan you have prepared for someone else? An advisor should be able to show you a sample, with the names blanked out.
9. How do you stay up to date? Stockbrokers/advisors with major firms draw on gigantic research departments. If the person you are interviewing is independent and has no such obvious affiliations, you'll want to know how he stays current with financial investments.
10. Can you provide me with the names and telephone numbers of three current clients? Then be sure to follow through and phone those individuals.
Final thoughts
Follow your "gut instinct" in selecting a financial advisor. Don't be intimidated by credentials or your lack of knowledge in financial planning. Listen! It's critical to pick up on whether the person you are going to trust with your money is really listening to your needs.
Finally, finding a good financial advisor is not that difficult. Use your consumer skills and apply them to finding someone that is looking out for your best interests.
Christopher L. Hayes, PhD, is the executive director of the National Center for Women and Retirement research (NCWRR) and the author of Money Makeovers: How Women Can Control Their Financial Destiny (Doubleday, 1998).
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