How to Select a Financial Advisor
Selecting a Financial Advisor is not unsimilar to picking a doctor for a major surgery. Make a mistake and the results can be devastating, but pick the right one and your life can be much improved. While there is no fool-proof method that guarantees success in selecting a Financial Advisor, here are 7 guidelines to increase your chances:
- Try to get a referral.
A referral from someone you trust is probably the best way to start your search for a Financial Advisor. Ask your friends and relatives. If they have not “gotten rippled off” or lost their money, this at least implies that the Advisor is honest and reasonably competent. Ask for referrals from individuals that are financially more sophisticated than yourself and that have worked with the Advisor for preferably five years or greater.
- Ask about their education background.
When interviewing prospective Advisors, ask them about their formal education. While college degrees do not guarantee they listened in class, at least they attended. Particularly look for educational backgrounds in Finance, Economics, and/or Business. While someone who majored in Art or who did not receive a degree could still be competent, it has to make you worry a little whether they truly understand some of the finer nuances of helping someone organize their financial life.
- How experienced are they?
While everyone was the “new kid” at some point in their career, you do not want to be the “guinea pig”. A well-educated Advisor with no “real-world” experience has yet to achieve wisdom. Wisdom comes with time and experience. The more the better. Financial Advisors who have been in the business at least 10 years have likely weathered one or two business cycles and a stock market crash or panic along the way.
- Any professional designations?
Be careful with these, as too many initials can be blinding and are not a replacement for a solid education. In fact, Advisors without a formal education may try and use professional designations as a replacement. Both education and designations are best, as it shows the Advisor has continued to improve their knowledge base over the years and are therefore more likely to be abreast of current trends. Since there are too many designations to list, ask your potential Financial Advisors what areas of expertise their particular designations imply.
- What company do they represent?
A “big name” does not guarantee success, as you are getting advice from the Advisor, not the company. If the company hires someone incompetent, you are the one that suffers financially. However, bigger companies have deeper pockets in case something goes wrong and you have to sue. Also bigger companies can usually afford to have additional expertise on staff. If your potential Financial Advisor works for a smaller firm, ask if they carry “Errors and Omissions Insurance” and whether they will work with your other Advisors, such as your Attorney or CPA.
- Check their disciplinary record.
This is one thing most people do not do, but it should be done. Make sure there are no obvious skeletons in the closet. You can go to www.nasd.com to check on a Financial Advisor’s background and you should also check with your particular State Securities regulator. It is not unusual for someone who has been in the investment business for a long time to have had some complaints, but you should look for a pattern and/or particularly egregious claims.
- Follow your instincts.
Remember, if something sounds too good to be true it probably is false. Everything a Financial Advisor recommends to you should make good common sense. Follow your instincts and be sure you get along with the Advisor, as you may be in the relationship for many years. A competent, experienced, honest Advisor can help you reach your financial goals much quicker and more efficiently than you probably could do on your own.
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