Finding a financial advisor can be daunting. This is because the title “financial advisor” is not regulated, and advisors range the gamut from annuity sales people to insurance agents to registered investment advisors. How can you quickly identify one who is competent and offers you the best service for your money? Who you select to be your financial advisor is largely dependent upon your goals, financial situation, state of life and investment style. If you are just looking to buy insurance, there is certainly no problem buying from an insurance agent. But, if you are interested in investing your 401k or other funds for long-term growth, it is crucial that you understand how to select the top wealth managers that will help you grow your investment portfolio over time.
Ask Your Financial Advisor These Top Questions!
1. Are You a Fiduciary?
Fiduciary advisors make up less than 15% of the financial industry. Cerulli Associates, a Boston firm that studies the financial industry, recently determined approximately 250,000 people throughout the U.S. call themselves financial advisors. Of those, 232,000 are sales people who work for their firm, not you. Only 23,000 are Registered Investment Advisors (also known as Fiduciary Advisors). Fiduciary advisors have a legal obligation to put your interests ahead of their own. This means if your advisor does not act in your best interest, you have the right to take legal action. Many investment advisors will try to avoid fiduciary status, because of the higher standard that must be followed. Sales reps selling insurance, mutual funds or other financial products are most likely not fiduciaries. Be sure you are working with a Registered Investment Advisor (RIA).
2. How Are You Compensated?
It is important for you to know how your Financial Advisor is being paid. Many commission-based financial salespeople are honest individuals. Unfortunately, in the financial services industry, the worse the product, the higher the commission paid out. The easiest way to avoid purchasing “bad products” and eliminating potential conflicts of interest is to avoid financial salespeople who receive commissions. By working with Fee-Only Financial Advisors, you are avoiding a conflict of interest, as they are strictly paid through management fees and not commissions, making sure their interests are aligned with yours.
3. Where Is My Money Held?
In light of current white collar scandals, many people are nervous about who to invest their money with. If those who invested their money with Bernie Madoff would have asked this simple question, a red flag would have been raised. Your money should always be held with a third-party, trusted financial institution such as, Charles Schwab or TD Ameritrade. Having your money held with a reputable financial institution, allows you direct access to your funds at anytime, with the assurance of protection.
4. How Many Years of Experience Do You Have?
Look for financial advisors or money managers that have at least 10 years of industry experience. Markets change constantly and are notoriously difficult to navigate. Ideally, your financial advisor should have experience investing in both good and bad markets. Also be sure to check the background of your financial advisor, it can offer you insights into their business practices and history.
5. What Professional Credentials Do You Possess?
The attainment of professional credentials is an indication of a commitment to professional growth. Financial Planner, Financial Advisor (Adviser), Financial Consultant, Financial Analyst are all titles used very loosely in the financial industry, by investment professional that do not hold designations or credentials. Be sure that the Financial Advisor you are working with holds at minimum a Certified Financial Planner, CFP ® designation. CFP® professionals must meet education, experience and examination requirements, in addition to continuing education requirements. If you are unsure about the credentials your current Financial Advisor possess, visit the Financial Industry Regulatory Authority’s website at: http://apps.finra.org/DataDirectory/1/prodesignations.aspx for a greater understanding on the designation requirements.
6. Are There Surrender or Commission Charges?
If there is a surrender charge, there is almost certainly a commission. If there is a commission, you are not dealing with a fiduciary advisor. You should be free to move your money out of an investment if you are dissatisfied. This means you should never own a product with a surrender charge.
7. Do You Assess My Risk Tolerance?
Good financial advisors will work with you to determine your risk tolerance. This can depend on many factors, such as how close you are to retirement, your goals, or your lifestyle needs. If your risk tolerance is set too low, you won’t generate the returns you should. If it is set too high, should market conditions become difficult, you will feel pressure to sell your investments, which could cause you to miss out on superior long-term returns. Look for an advisor that is aware of different investment styles and offers to design you a portfolio that is customized to your risk tolerance level. Your financial advisor should assist you in determining your tolerance levels and you should always feel comfortable with where your funds are invested.
If you have more questions about how to select a financial advisor or would like a complimentary portfolio review, feel free to contact us at 1.800.658.9560 or firstname.lastname@example.org.