Choosing a Financial Advisor

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Choosing a financial advisor is a decision that shouldn’t be taken lightly. After all, you want to feel comfortable knowing that your finances are in good hands. Be sure to consider the following.

Your personal style.

Deciding what type of management style you prefer can help you determine if you want a “partner” to help manage your investments or if you are willing to give the advisor more control.

Where to look for an advisor.

You can start by asking your friends and family for recommendations. Check out the National Association of Personal Financial Advisors for a listing of fee-only planners at www.napfa.org.* If you decide to use the services of a financial planner, be sure to conduct your due diligence on the background and qualifications of the planner, including those on this Web site’s list.

How to evaluate potential advisors.

It’s important to meet face-to-face with candidates to make sure you are comfortable with the person and that you can trust him or her and you have good rapport. Most are willing to outline their services, fees and investment strategy during a free consultation. Ask the potential advisor for client references.

Your objectives and philosophy.

Ask questions to find out if the advisor has an aggressive or conservative investment philosophy. You can verify answers by reviewing his or her records. If he or she works for an investment firm, you can also request information about the firm’s philosophy.

The advisor's credentials.

Some have credentials such as Certified Financial Planner (CFP®) certification or Chartered Financial Analyst (CFA) designation. But no state or federal law requires these credentials. Many states do require their advisors to pass a proficiency exam or meet other requirements.  Generally, there are two types of financial advisors, registered representatives and registered investment advisors. Registered representatives must pass the General Securities Representative Exam, known as the Series 7 exam and be registered with the Financial Industry Regulatory Authority (FINRA). In fact, you can check on the background of a registered representative using the FINRA BrokerCheck.*

Most financial advisors must fill out a form called Form ADV. This is filed with the Securities and Exchange Commission (SEC) or state securities agency in the state where they have their primary place of business. It contains information about the advisor’s education, business, service, fees and strategies, as well as if they’ve had any problems with regulators or clients. You can ask your advisor for a copy or obtain one from your state securities regulator or the SEC.

Is there a conflict of interest?

Some agents or advisors may receive a significant financial reward for recommending a particular investment. For example, some agents, brokers or advisors may work for a particular 403(b) vendor and represent only their employer's or insurance company's products. Others are not employees of a 403(b) vendor and can represent many different 403(b) vendors. Always ask why they are recommending one product over another. In addition, ask the advisor if he or she is acting in a fiduciary capacity.

How is the advisor paid?

Financial advisors are typically paid a percentage of the value of the assets they manage for you; an hourly fee; a fixed fee; a commission on the securities they sell; or a combination of these methods. Ask the advisor to disclose in writing all forms of compensation he or she will earn, including bonuses, commissions, etc.

Once you choose an advisor you trust, he or she should provide you with:

Pertinent information.

Your advisor should provide and explain information, such as financial market overviews and potential investment risks, to help you make informed and intelligent decisions.

An agreed-upon plan.

The written investment plan you have developed with your advisor should be followed unless he or she has discussed making changes with you.

Regular updates.

Continual education about your portfolio’s results and the effects of current and expected trends in the financial markets is key to your investment success.

Take Your Time

Choosing a financial advisor probably won’t happen overnight. Do your homework and take ample time to make your decision so you can be sure you’ve found an advisor you’re comfortable with.

For more detailed information, download "Working with a 403(b) or 457 Advisor."

* Web site provided for information only. No endorsement is implied.

Questions to Ask Agents Who Sell Investments

When you meet with an advisor, be sure to ask these questions and take notes during the meeting.

  • Are you registered with the Securities and Exchange Commission or the California Department of Corporations?
  • Are you acting as a fiduciary and if not, why not?
  • Do you have an insurance license?
  • What credentials have you earned?
  • Do you have any conflict of interest here?
  • What is your disciplinary/arbitration history?
  • What is your training and experience?
  • Tell me about your investment philosophy and typical clients.
  • May I see a list of references?
  • How are you paid? Fee-based or commission-based?
  • Will you receive a bonus for recommending a particular investment?
  • Please disclose all sources of income you will receive if we work together.

Be sure to get the information in writing, including the advisor's basis for recommending certain investments and disclosure of fees and penalties.