How to choose a financial advisor

A financial advisor, also known as financial planners or brokers have expertise in investing. Some financial advisors specialize in insurance, others 401K plans, and some financial planners have a broad background.

Here are some tips on finding a financial advisor that’s well-suited for you.

First, I recommend you look for a fee-based financial advisor. These advisors charge you either an hourly rate or a flat fee. A commissioned-based financial advisor gets paid based upon what products she or he sells. So in spite of their very well placed intentions of giving you sound financial advice, commission-based financial advisors have to sell in order to get paid so they have a huge stake in you buying their product.

Look for a financial advisor the same way you would go about looking for a new dentist or veterinarian: ask around. Talk to your neighbors, co-workers, and friends, people in your alma mater or professional organizations you belong to.

Once you get a recommendation, your next step is to meet the financial advisor in person. Think of this meeting as an interview which you’re conducting. Come prepared with a set of questions. Here are some that should be on your list:

• What is the total amount of assets they manage? If it’s more than $25 million, the FA must have filed an ADV form with the U.S. Securities and Exchange Commission. If the assets are less than $25million, they must register with the state securities regulator where they have their principal place of business. Don’t be shy about asking to see these forms because it’s in your best interest that you hire someone who isn’t fraudulent.

• How long have you been practicing? It’s been my experience that anyone practicing 5 years or more is ideal.

• What professional associations do you belong to? Even if an advisor just has one or two years of professional experience, they should belong to at least one professional organization. Write down the name of the association and ask for a web site so you can conduct further research.

• What is your area of specialty? Some FAs specialize in 401Ks, others in real estate or insurance. They could also have a general practice. Choose a specialist if your needs call for it.

• Ask for references. The FA should be able to give you a list of names and contact information.

During the interview look for clues that give you insight to the FA’s personality, style, and investing philosophy. Does the FA come off overly aggressive? Does she seem passionate about overseas investing? These may or may not suit your own personality or interest. While you shouldn’t expect to become best friends, your FA is going to be a trusted partner in your life planning so make sure that you feel comfortable talking to him or her about your money.

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This entry was posted on Tuesday, November 4, 2008 at 9:27 am and is filed under Retirement Planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

3 Responses to “How to choose a financial advisor”

  1. Crisis Cartoon Says:

    November 5th, 2008 at 6:00 am

    Hi,

    I think it is important you have to be comfortable with he/she.

    Anyway, don’t trust your money to anyone if you really want to protect it.

    You can listen to their advice, but don’t let them influence you on your decision.

    Ren

  2. Jane Says:

    November 5th, 2008 at 4:19 pm

    Fee-based is definitely the way to go! :-)

  3. San Francisco Financial Planning Says:

    December 3rd, 2008 at 10:42 am

    Great advice for finding a financial planner. I would add that Personality fit is often an over-looked factor. You want to make sure that you share the same basic philosophies with your planner. For example, if your planner is going to insist that you cut out your lattes each day, but you find them to be a $3 slice of heaven, you may not agree on larger issues either.

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