How to Choose a Financial Adviser

Saving for retirement begins with putting money into a dedicated account. Once you have funds in an account, you must decide where to invest the money to capitalize on account growth until you need it. Without knowledge and experience, you could choose investments with higher risk than you are comfortable with or conservative investments that do not beat inflation. With the quality of your retirement at stake, you must seek advice from the right sources to improve your chances for success.

Your account balance at retirement will be a combination of money directly contributed to investment or savings accounts, along with increases due to market or interest growth.

Will you be set financially or struggle to take care of basic needs?  Will you have something to pass on to your children, or leave them with a pile of unpaid bills as your legacy?  It is your actions now, wnhich determine the answers.

What Does a Financial Adviser Do?

Depending on their training, a financial adviser can help you select appropriate investments based on your goals, time to retirement, and comfort with market risks. Some advisers can also assist with estate planning, college preparation for children, and other long-term financial needs.

Advisers have the ability to help you determine how much money you need for retirement and create a personalized strategy for success. They can provide needed education for personal investment decisions, as well as the ability to buy investments on your behalf. They may review 401K investments and other strategies currently in place and find a way to close the gap when you are behind in saving.

Understanding the Differences in Licenses and Professional Designations

Not all financial advisers are equal. There are different levels of training which may impact the advice they can offer. Certain training results in security licenses and determines the types of products an advisor can discuss with clients.

Security Licenses are designated by numbers and include the series 3, 6, 7, 63, 65, and 66. Each level trains advisers on skills regarding mutual funds, ETF’s, stocks and bonds, as well as more advanced investing skills involving managed money, options, hedge funds, and commodities. If an adviser transfers you to another individual, then it is likely they have not obtained the security license necessary to discuss the answers to your questions.

For most investors having someone with a series 6 (mutual funds, ETF’s and other combined accounts) and a series 7 (stocks, bonds, and options), will cover all your investment needs.

Professional Designations

In addition to the mandated series licenses, there is also additional training some advisors completen offering more advanced skills and additional services, such as estate planning. In general, the more designations an advisor has, the more they charge for their services.

Common designations include the following:

  • AICPA PFP: American Institute of Certified Public Accountants Personal Financial Planners, have passed required exams and earned the financial planner designation as well as an advanced understanding of accounting principles.
  • CFP: Certified Financial Planner must pass examinations administered by the CFP Board of Standards, covering employee benefits, estate planning, insurance, market investments, retirement, and taxation.
  • CFA: Chartered Financial Analyst exam covers neconomics, financial accounting, portfolio management, and security analysis.
  • ChFC: Chartered Financial Consultants work for the insurance industry’s financial planning departments.
  • CLU: Chartered Life Underwriters must pass national insurance exams involving both an insurance and investment portion.

Advisors Fiduciary Duty to Clients

All security licenses require a fiduciary duty to clients, but there is a different standard based on the training and designations carried. Those with additional certifications beyond the mandatory security licenses are held to a higher standard of fiduciary duty and thus command higher fees. Those under the lessor “suitability standard,” tend to be more transactional.

Suitability Standard requires the advisor to consider the individual’s personal situation and risk tolerance at the time of the investment. The higher Fiduciary Standard requires advisors to avoid conflicts of interest and have a greater level of transparency. They also must monitor client suitability beyond the time of the initial investment and must monitor the account as well as the consumer’s personal financial circumstances to ensure ongoing suitability.

How Advisors Get Paid

  • Commission Financial Advisors can receive a commission when they place a trade on your behalf. They receive no additional pay for giving advice, only when you choose to invest in a security product they offer. The company selling the product determines the commission levels, which may vary among companies.
  • Fee-based Advisor receives a percentage of the total portfolio they manage each year. Their fee adjusts based on the size of the portfolio and covers both advice and the cost of trades within the account. Often the higher your investment balance, the lower the fee percentage.
  • Fee-only Advisor charges for their time. You hire them for an hour or more to analyze your finances, answer questions and offer specific financial recommendations. In a fee only service, you often make the trades independent of the adviser, removing potential conflicts of interest.

Choosing An Adviser

Selecting the right advisor for your personal needs goes beyond looking at designations and even fiduciary duty. You are partnering with someone and trusting your financial future to their advice and recommendations. Most people do not have the time to study all the available investment options on the market and therefore rely on professionals to guide them through the investment process.

To find someone you are comfortable with, prepare for your initial meeting with the following questions.

·         How do you receive compensation for your services?

·         What is your level of experience?

·         What planning services do you offer?

·         How often do you recommend meeting with clients?

·         Do you make specific investment recommendations?

Beyond understanding what products and services they offer, pay attention to how you feel when discussing your questions and concerns nwith them.

Do you understand how they present investment concepts and recommendations? An adviser who explains strategy in a way you can understand will lead to better decisions on your part.

Is the adviser a good listener? Does the adviser spend most of their time talking about their products and credentials or your needs and aspirations? In order to make solid recommendations, they must understand your story and have a grasp on your past financial history and what you want to gain from your investment decisions. Are they interested in where you want to go or do they “tell you” what you need to do? Working with an adviser is a partnership with your needs at the center of all discussions.

Do they take your concerns seriously? They understand the markets fluctuate and a large dip tomorrow is no the end of the world. However, if this level of volatility keeps you up at night, they should recommend investments according to your comfort level, not theirs. Having an advisor who is in tune with your needs will lead to a long term relationship and more financial success.

Finding the right financial adviser is an important decision, but not a permanent one. If you are uncomfortable with your current adviser you can find one that is a better fit for your current situation.

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