If you’re like 80% of the people in the world you don’t have as much in your investment accounts as you did one year ago. Whether you should change Financial Advisors or not, now is a good time to asses the performance of your current advisor and decide if it is time to make a change. I want to make it clear that I am speaking of a Financial Advisor not an Investment Advisor, there are less then 5% of the world’s population that should be seeking the services of an Investment Advisor. The investment markets are not a place for most of us to turn to make money; they are a place for us to preserve the capital that we’ve accumulated and grow that capital at reasonable rates of return. Too many of us lost a sizable amount of our capital in the 2001 Tech Bubble only to loose more in the Sub Prime Bubble because we were working with an Investment Advisor not a Financial Advisor.
The first step in choosing your new Financial Advisor is for you to decide what you want from your advisor. Here are some suggestions:
Help me preserve the capital I have been able to accumulate and grow it at a conservative rate of return.
Help me to live within my means and set an investment strategy based on my needs and goals.
Help me protect my family form the loss of my earning ability or my death.
Help me and my family achieve our financial goals prior to retirement.
Help me accumulate enough to enjoy a comfortable retirement.
Help me assess my need for long term care insurance.
Help me establish and estate plan.
Once you know what you want from your advisor you’ll need to find a qualified provider. As in all professions the first qualification you need to look for is education. Your potential advisors will have a Series 6 or a Series 7 securities license as well as an insurance license and a variable products license. A Series 6 allows them to sell mutual funds and a Series 7 allows then to sell stocks, bonds, options as well as mutual funds. A Series 7 is a more in-depth course of study then the Series 6, so I’d eliminate anyone who doesn’t have a Series 7 securities license.
Seventy percent of the people representing themselves as Financial Advisors stop their education beyond their licenses and their required annual continuing education credits. It’s the other 30% of the advisors that you are looking for. These are the people with initials behind their names representing professional designations. At the top of this designation pecking order is the CFP (Chartered Financial Advisor) designation. A CFP is comparable to a master’s degree in financial planning; it takes three years of study and at least three years of practical experience. To find a CFP in your community go to: (cfp.net/search) Other designations like the ChFC (Chartered Financial Consultant) and CLU (Chartered Life Underwriter) are focused on specific segments of the financial advisory field. These designations are comparable to Board Certifications in the medical fields, and I personally would not put my finances in the hands of anyone who doesn’t take their profession seriously enough to seek all the education that is available. This search can leave you with a list of three to three hundred depending on the size of your community. I suggest that you check BestofUS.com, a website that lists the best of ten professions across the United States. This should help you bring your list down to a manageable number of qualified advisors.
Next go to the NASD (National Association of Securities Dealers) website and look up your short list of qualified advisors.
(finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm) Here you’ll be able find out your potential advisors work history, license history and if they have had any legal or disciplinary action brought against them. We’ve gone through some pretty tough financial times over the past ten years and a lot of good advisors have been sued, so use this information as a means of asking your potential advisors questions. Can you tell me what these issues are about? Now Google your short list and see what you find; you’ll be surprised what you’ll learn.
At this point, you need to sit down with those left on your short list. Here is a list of questions that you should ask.
What is your approach to financial planning? If they don’t address the Help me points above their not a Financial Advisor. If they start talking about Managed Accounts, Sector Investing, Momentum, Technical verse Fundamentals, or Option Strategies your talking to and Investment Advisor.
What was your book of business worth on March 1, 2008 and what is your book of business worth today? Can I see supporting reports? Their going to ask to see your finances, it’s fair for you to ask to see theirs and if it’s down more then 25% you’re in the wrong place.
How are you paid? There are only three possible answers here; commissions, asset base compensation, or fees. Most will be a combination of the three possibilities; the one that you want to watch out for is commissions. Commissions can create a conflict of interest. Asset based compensation means as your assets grow their compensation grows or as your assets go down so does their compensation. I liked that it results in a common objective. Fees will involve special work like a financial plan or a research project relative to your specific situation, and that’s fair.
How often will we meet to review my situation? This needs to be at least twice a year.
Tell me about yourself. How long have your been in the business? Do your have any professional designations? Have you had any legal or disciplinary action taken against you? What is your employment and education background? Have you written any books or articles that I can read? You know all the answers, just sit back and judge.
If you’ll follow this process you’ll find the Best Financial Planner for you. You may end up with the person that you’ve been using, but you now know they are qualified to provide you with the service that you need from your new Financial Advisor.