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5 Things to Consider When Choosing a Financial Advisor

June 9, 2016

 

 

So you've decided to get serious about your finances and are considering hiring a professional adviser to help you out.  Here are 5 things to consider as you evaluate your options.

 

1. Experience

Believe me, I cringe when I think about some of the mistakes I made in my early years in this industry.  You definitely don’t want to be the guinea pig for an inexperienced new adviser.  Ultimately, you want to work with someone who has at least 5 years of experience.  

Ten years would be even better.

 

2. Qualifications 

How do you know that an advisor is knowledgeable, educated, and qualified to help you?  Working with someone who has the CFP® designation would be a good start.  In order to become a CFP® professional, there is an education requirement in addition to one of 

the most difficult tests in the industry.  They are also required to receive continuing education each year.  Don’t be afraid to ask a potential advisor what makes them qualified to give you financial advice.

 

3. Compensation

I cannot stress this enough.  KNOW HOW YOUR ADVISOR IS COMPENSATED AND EXECUTE A FORMAL WRITTEN AGREEMENT.  This can uncover the hidden motivation behind the recommendations that they will make.  Do they make commission from the sale of certain financial products? Do they charge a flat fee or hourly fee for their advice?  You should know exactly how the compensation works and feel comfortable that you are receiving advice that is completely objective and not driven by product sales.

 

4. Client Base 

Asking for references is never a bad idea, but it may also be helpful to ask about the types of clients that an advisor typically helps. Many advisors focus on a particular clientele like business owners or young professionals, and they may have experience working with others in a similar financial situation to yours.

 

5. Disciplinary Background

One of the best ways to protect yourself from a bad adviser is to check their disciplinary record.  Most advisers will be listed on the

SEC website (http://www.sec.gov/investor/brokers.htm) or the FINRA website (http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/) .  If you cannot find a potential adviser on these websites or if the record is not squeaky clean, you should be wary!

 

The best thing to do is to visit with a few different firms before you make a final decision.   Competition keeps everybody honest.  Besides, this person is going to (hopefully) guide you to a long and successful financial life, so it is important to put in some work up-front to be sure you make a wise choice.  

 

Asking around to financially successful friends and relatives can be a good way to find out who you should consider for the job, but nothing beats a face-to-face meeting to ask questions.  Ask a few “tough” questions and see how the adviser reacts.  You will know when you have found someone that is truly worthy of your trust.

 

 

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

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