Information Before You Choose an Advisor

Before you even begin to look for a professional you need to define what it is you are looking for. Do you want a financial planner? Are you looking for retirement answers? Do you want a portfolio review? Do you have business issues that need to be addressed? Different planners have different levels of expertise. You need to know what you want done as you begin to look for an advisor.

However, as an advisor I feel it is important that you, as the consumer have a better understanding of the financial services industry and those who call themselves advisors or registered representatives. While many factors go into deciding who to work with, if you dig down and define in concrete terms what you are looking for these components and how they are addressed will play an important part.

Products - Most investment advisors offer basically the same products. While there may be some variation between companies we have access to most of the same 25,000 mutual funds, countless stocks and bonds, real estate trusts, and various separate account programs as well as many other financial products. The difference should come in how the advisor selects the product for you, manages it going forward, and most importantly does the product fit for your goals and risks.

Service - Most investment advisors offer outstanding service. You should expect proper service including regular meetings to review your goals and programs, a return of your phone calls and answers to your questions. A better expectation of service should include an advisor who is proactive; anticipating your needs and talking with you about portfolio adjustments before or during major events, not making excuses after. You should also expect an Investment Policy Statement which outlines your goals and expectations so you know what you can expect from the advisor you are working with.

Price – No advisor works for free, and some say price is important only in absence of value. An advisor is typically paid one of 3 ways. The advisor may get a commission from the product that is placed. Depending on the product, such as in the case of a mutual fund class, the commission will vary but the advisor may have no control over the amount of commission or charges. A commission may also occur not only for purchases/deposits but possibly for redemptions or changes as well. A fee-only advisor usually will charge a fee for plan design that is hourly or flat rate based on the task. You may then have to pay to implement the plan or if you use no-load investments may be able to implement yourself with no sales charge. A fee-based planner can use both of the above methods in order to be paid and should disclose which method is being used prior to placing a product or doing any task. However, typically this type of advisor will charge a percentage of assets under management and waive transaction fees or commissions where possible. Not that any one type of advisor is better than the other, it is important to know how the advisor is being paid for the services provided and if the payment type will influence the advisor’s decision on what product may be recommended.

Knowledge – This is the area where advisors can and do vary the most. Does the advisor have any type of professional designations or credentials; what is the background of the advisor; has the advisor worked with people with your specific goals and needs? It is also to know if the advisor has had any formal complaints or if the advisor has been sanctioned by any regulatory agency. The advisor should also be able to provide references. These are just a few of the questions you should have answered before you commit your money to the programs the advisor recommends. In addition to these I also strongly urge you to believe in your instincts. You need to trust the advisor and believe that what is being recommended is to make you better off, not what is easiest or most profitable for the advisor.

By Bernard M. Bowhuis, CFP