Looking for a Financial Advisor?
So, you’re finally making enough money to sock some away at the end of the month. You’re sick of earning nothing on your savings account so you decide it’s time to start investing more than the match on your 401(k)… Then you realize, this stuff is complicated. What type of account should you open? Should you use mutual funds, stocks, bonds, or ETFs. What is an ETF? Maybe you should just increase your 401(k) contribution. Some articles you read will preach that permanent life insurance is the best option while others say this is outright stupid. Do you do it yourself down at Schwab, eTrade, Fidelity, TD Ameritrade, etc or do you work with an advisor?
This “stuff” has gotten OVERLY complex. I’m the first to acknowledge it. That said, it is confusing and we have to deal with the complexity, we can’t just pretend it doesn’t exist. After nearly 8 years of studying in school, gaining professional designations, and working with about 100 clients, I still don’t know everything about finance and I never will. Like most professionals, I’m a proponent of sticking to what I do best, and hiring out those the functions that aren’t in my wheel house. Therefore, this blog will be about the types of advisors you can hire… not the options for doing it yourself.
I’ve presented this topic on multiple occasions and I think the best way to shop for an advisor is follow these five steps:
- Understand the different ways advisors get paid (I’ll do a detailed blog on this soon). Interview one from each of these frameworks. The list isn’t exhaustive but will give you a good place to start.
- Hourly Planner
- Commissioned Broker
- Fee-based Advisor
- Ask your co-workers who they use. Your employee benefits will be a crucial aspect of your finances. An advisor who has some familiarity with your benefits package will have a leg up on competition.
- Research the firms backing the advisors you choose to interview. No I don’t just mean Yelp. In fact, a lot of advisors won’t even be on Yelp for compliance reasons. Take a look at Glassdoor.com. This site has a library of employee reviews on the major firms. Posts from disgruntled employees is a BAD sign and may indicate the firm’s values are questionable. It may also lead to high advisor turnover putting your accounts at risk of being “orphaned” if your advisor gets fed up and leaves the firm or industry altogether.
- Question the experience of the advisor. What makes them competent to handle your finances? If they are new to the business don’t just write them off. They may have a mentor working with them on their accounts who has stellar insight from decades of experience. If you end up gravitating to someone younger, I would simply ask to have their more experienced supervisor collaborate with the younger associate in handling your case. In doing so, you might just get the best possible service from the newbie who has something to prove in keeping you happy whereas the 60 year old VET nearing retirement probably doesn’t need your business quite so much. On the same theme, ask for their credentials. Do they hold professional designations? If so… which ones? It’s a joke how easy it is to get certain initials behind your name in financial services these days. The big 3 according to a number of very well-respected publications are the CFA, CFP®, and CPA. All of these credentials require substantial real-world experience to obtain the marks along with several months if not years of study to pass the exams.
- Do a background check. Almost all financial advisors can be investigated as most regulators require us to publish information about past disciplinary history, major client judgments/complaints, bankruptcies, criminal convictions, etc. Below is a list of links where you should be able to look up your advisor’s record and status of their license. If they are not willing to help you do this, be weary.
- CPA - California Board of Accountancy License Look-up
- CFP® – Certified Financial Planner™ Board Website
- Broker– Financial Institution Regulatory Authority Website
- Registered Investment Advisor – Securities Exchange Commission Website
- California Insurance Agent – California Department of Insurance
- CFA - Chartered Financial Analysts
If you would like more info on shopping for a financial advisor, check out part two of this blog coming soon. Kiplinger has a write-up on the topic as well which can be found at the link below.
Richard Davey, CPA CFP