How to determine if a financial adviser is right for you

You’ve done well for yourself over the years and you think it’s time you look for a financial professional to help you plan your finances or look over your investments.  Or maybe you are thinking about your federal retirement and want some help determining if you are ready.  There are a host of reasons someone may need help with their finances and is ready to use the services of a financial professional. Whatever your specific situation may be, looking for the right financial adviser may be an overwhelming and dreaded task.  You are going to trust someone with your life savings and your future. You’ve heard horror stories here and there about bad advisers and shudder at the thought of selecting one.
So, how do you go about it? How do you select a financial professional that will be right for you? Here are some ways to go about it:
Referrals
The tried and true method of getting someone who has been vetted by acquaintances and friends.  If they’ve done well for your colleagues, you figure they will perform well for you too.  While you’ve undoubtedly heard the phrase that past performance is not a guarantee of future results in financial circles, I still believe word of mouth is the best advertisement.  You will be working with someone your friends have trusted and they continue to vouch for.
Rapport
This is someone that you will hopefully be engaging with for years to come.  You need to feel a sense of ease when chatting.  In your initial meeting or phone conversation, you’ll want to have a feeling that the financial professional is someone you can talk to.  Many people can tell right off the bat when they meet someone if this is a person they are going to be able to get along with.  Does this person listen to you? Do you feel they are in tune with what you need or want in terms of services to be provided?  Is this person patient in explaining how they work or what their processes are in financial planning?  Do you feel comfortable with the investment philosophies they’ve selected for your situation?
Life Experiences
Does the adviser have enough life experience to be able to relate to your situation?  I’m not suggesting the adviser has to be on the doorstep of retirement if you are considering whether you are ready to retire, but some real empathy of what it is like to leave a long career might make you feel more at ease.   Has the adviser planned for and sent kids to college, if that is something you are planning for?  Some ability to relate to the stage of life you are in is a huge plus.
Licensing and Disclosures
What licenses and certifications does the adviser have?  Education?  Are they current in keeping all their licenses and credentials?  Do they have any disclosures that you should be aware of?  Have there been fines levied against them for their actions as an adviser?  Have they declared bankruptcy?  You can check an adviser’s record and history at www.finra.org.  Please keep in mind that just because someone goes through financial difficulty in their personal lives that it should not be automatic disqualifier, but it is important that the client have all the facts so they can make an informed decision.
Accessibility
How accessible will this adviser be to you?  Will you be passed on to someone else after you sign on as a client.  What is his method of communication and how often will he reach out to keep you informed? Does this line up with your expectations?
Niche
Does the adviser specialize or have a niche that lines up with who you are?  What’s his niche?  Does the adviser specialize in retirees living overseas?  Widows and Widowers?  Divorced women?  Having a niche that lines up with your needs is a huge plus because your issues won’t be the first time he’s seeing them.
Fees
Of course, everyone wants to know how much it is going to cost to get guidance and advice on my money.  What you should also ask is how the adviser is going to be compensated.  Will they be a fee-only adviser, which is what the National Association of Personal Financial Advisors recommends?  The thinking is that you’ll get unbiased advice from someone charging a simple fee regardless of the financial products they recommend.  This avoids any potential conflict of interest when recommending something which could generate large commissions at some planning firms.
There are some advisers that are fee-based, however.  They hold licenses that allow them to sell insurance products and investments for a commission.  This can cause confusion on the part of the client if they don’t fully understand how the adviser is getting compensated.  There could be a benefit as a “one-stop shop” for all your needs as opposed to a fee-only advisor referring you to outside sources of insurance products.  The key is for the client to be fully aware.
Fees can be based on service by the hour, for a specific task like generating a financial plan or a fee based on assets managed.  Hourly fees range from $150 to $300 per hour while there is an extreme price variety in what financial plans will cost.  Fees can also be based on the amount of assets under management.  Fees typically range from 1 to 2% of assets managed.
Fiduciary
Is your advisor a fiduciary?  A fiduciary is someone legally required to act in your best interest.   It may be a surprise to you, but up until now a financial professional was not legally required to act in your best interests even on retirement accounts.  There is a new Department of Labor ruling which requires investment professionals to be held to a higher standard on retirement accounts.  This gap in ethical service continues on regular investment accounts.   Ask your adviser if he is a fiduciary for your non-retirement accounts.
Red Flags
Here are just a few red flags that should alert you something is not quite right with the way your investment adviser is handling things:
  • When the investment adviser requests you write checks payable to him or the adviser’s firm.  An adviser should not hold custody of your funds or assets.  A third party should hold custody and all checks should be made to the third party, typically a clearing house.
  • Your adviser should not have access to your account except to make investments with your funds or deduct the previously agreed upon fees.
  • When the only statements you get come directly from the adviser.  Statements should be coming from the third party where your assets are held, the custodian of your account.
  • Adviser should not be guaranteeing returns on your investments.  Bernie Madoff guaranteed 1% per month on accounts and we all know how that ended.  Any promises or guarantees made by the adviser should be a huge red flag.

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