When people think of their money and how it is managed, they often
zoom in on one metric — how well their investments performed compared to
the broader market.
But a new survey reveals that another big factor determines whether someone is satisfied with his or her investment firm: the financial advisor.
“The study finds that there are two elements beyond investment
performance separating firms with high satisfaction from those with low
satisfaction: the person that investors credit for their investment
performance and the relationship investors have with their advisor,”
said Craig Martin, director of investment services at J.D. Power &
Associates, which conducted the study.
When it comes to our money, how well our investments do is out of our
control — as they say, past performance is not an indicator of future
results. But, who we choose to manage our money is.
For that reason, you’ll want to search and vet all candidates
carefully. Here’s how to find an advisor who is a good fit for your
money needs.
How to Find the Right Candidates
Start by asking friends and family for referrals, says Minneapolis-based certified financial planner Sophia Bera
and, in particular, get recommendations from people whose financial
needs, outlook or stage of life is similar to yours. Before contacting
planners, look them up online and on LinkedIn LNKD -1.69%
to get a sense of what each firm is like. Something as simple as the
photos on their homepages can indicate which ones are targeting your
demographic.
Also, search for a planner directly on the sites of the Financial Planning Association and the National Association of Personal Financial Advisors.
The advisors on the latter organization’s site are fee-only, meaning
they will not earn commissions for selling you specific investments but
simply charge you a rate, usually based on the assets you put under
management. Many experts say that a fee-only advisor is preferable, to
eliminate conflicts of interest and ensure he or she always acts with
your best interest at heart.
But there is one case when you may not want a fee-only advisor, says
Bera — and that’s if you want him or her to also help you with
annuities, life insurance or disability insurance — basically, other
investment vehicles besides stocks, bonds, mutual funds, etc. If so,
look for a firm that has a broker-dealer. “They’ll get a commission [for
selling you those products],” says Bera, “but some people want a firm
that has a broker-dealer so they don’t have to go to someone else for
disability or life.”
Once you’ve gotten a list of potential advisors, take one more step
before setting up appointments to meet: Find out whether each has ever
been disciplined for any unlawful or unethical behavior. You can do this
using the Financial Industry Regulatory Authority’s (FINRA) BrokerCheck. You can also look the advisors up on the CFP Board’s site, to verify that they each have CFP certification status.
When you have your initial interview, here are the questions you want to ask:
1. How do you charge for your services, and how much?
If you didn’t see this information on the planner’s web site, ask
whether there’s an initial planning fee, whether they charge a
percentage for assets under management, or whether they make money from
selling you a specific product. Not only should you know how much the
service will cost you, but it can help you determine whether they have
an incentive to sell you things.
2. What licenses, credentials or other certifications do you have?
Of the four main types of financial advisors,
the certified financial planner (CFP) designation is harder to achieve
than Chartered Financial Consultant (ChFC), because the former requires a
comprehensive board exam; the latter, however uses the same core
curriculum. If you want someone to manage your money, then look for a
registered investment advisor (RIA). If you have a high income or a
small business owner, you’ll probably want a certified public account
(CPA), who can offer you advance tax planning. The personal financial
specialist (PSF) certification is usually obtained by CPAs who want to
demonstrate they can help clients with comprehensive financial planning.
3. What services do you/does your firm provide?
Implicit in this question is also what assistance the advisor will
not give you. “Some people are just investment advisors and only provide
you advice on your investments,” says Bera. “Other people do
comprehensive financial planning around retirement, insurance, estate
planning and tax planning.” Go with someone whose offerings suit your
needs.
4. What types of clients do you specialize in?
Some financial advisors have a niche, says Bera, and if you have a
specific interest — such as charitable giving or socially responsible
investments or if you’re a newlywed or recently divorced — you’ll want
to find one that concentrates in that area too.
Edward A. Wacks, a CPA and CFP affiliated with Ameriprise Financial AMP +0.52%,
says, “Most advisors tend to focus on people within 10 years of their
age.” He for instance, focuses on soon-to-be retirees because he’s 61,
and business owners because he has his own business. “I feel we have
some commonality, and I understand their issues,” he says.
5. Could I see a sample financial plan?
There is no one set structure for a financial plan, which means there
is wide variation. “Some people might give you 50 pages of stuff you
don’t understand like charts and graphs, and another planner might
provide a five-page snapshot of your financial situation,” says Bera.
“With a sample, you can say, ‘I really want that in-depth analysis,’ or
‘I don’t understand that.’”
6. What is your investment approach?
If you have a strong preference for a particular philosophy, ask the
advisor what his or hers is. For instance, if you prefer to use low-cost
funds, you can ask whether they plan to used actively managed funds or
passive investments. Wacks gives an example of the kinds of differences
in investment philosophy that can arise: “I say to the client, ‘I’m not
here to make you a lot of money. If you want someone to do that, and
trade stocks back and forth, then I’m not the person. If you’re looking
for someone who makes investments consistent with your risk tolerance
and goals, then I can help you.’”
7. How much contact do you have with your clients?
“Some of planners hold an initial planning meeting and then you see
them once a year, and that’s all you get,” says Bera. Others might have
quarterly check-ins. “Some clients just want to go over everything once a
year and then they’re good. Others are looking for more support, so it
depends on the amount you want to pay, and how involved you want your
planner to be. Are you a delegator? Or do you expect your advisor to
explain things to you?” If you’re not sure of what you’ll be comfortable
with, the J.D. Power & Associates survey found that investors
contacted 12 or more times a year had the highest rates of satisfaction
with their advisors.
8. Will I be working only with you or with a team?
This question will also help you see how often you’ll be in touch
with your advisor. “Some will say, ‘I’ll meet with you once a year, but
Gina will reach out to you regularly and is my right hand person and
does a lot of data gathering for me.’ Some companies have a team
approach rather than an individual approach,” says Bera, adding that one
isn’t better than the other. “It’s really whatever your preference is.
But I wouldn’t want someone to get into a relationship and say, ‘I only
see my advisor once a year, and I thought I’d be seeing him more often.’
Then others really like the team approach because they know if their
planner is on vacation, they can still get an answer right away.”
9. What makes your client experience unique?
“Basically, ‘Why do I want to work with you?’” says Bera. “And people
should be able to answer that.” This will also give you insight into
whether their strengths are the ones you seek in a planner. For
instance, she would tell clients, “I’m your financially savvy best
friend,” and explain that her focus is on using their money to match
their values. This pitch would appeal to some clients, but not ones who,
for instance, are out to maximize returns in the market.
Finally, there’s one last question you want to ask of yourself after meeting with a potential planner:
10. Did he or she ask me questions and seem to be interested in me?
“Does he or she talk 90% of the time?” says Wacks. “If it’s more like
60/40 and he has asked you how he or she can help you, that’s really
important. Financial planning about looking at the person’s individual
circumstance instead of punching in some numbers — it’s based on the
client’s goals, financial background, what they believe about money,
etc.”.
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10 Questions To Ask When Choosing A Financial Advisor
Personal Finance | 5/09/2013 @ 8:00πμ |76.036 views
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