Choosing An Advisor

Selecting a financial advisor is a highly personal decision. After all, the advisor will be learning some of the most important things about you, such as your dreams and aspirations, your family history, and your complete financial picture. You need to be fully comfortable with your selection of an advisor, based on your assessment of his or her integrity, training, experience, and services that will be provided.

While some aspects of making your selection will be unique to your circumstances, there is one aspect on which the choice should be clear. You should seek an advisor who is committed to having a fiduciary relationship in which your best interests come first.

In a fiduciary relationship, the advisor will exercise his or her best efforts to act in good faith and in the best interests of the client. The advisor will provide written disclosure to the client prior to the engagement of the advisor, and thereafter throughout the term of the engagement, of any conflicts of interest, which will or reasonably may compromise the impartiality or independence of the advisor. The advisor, or any party in which the advisor has a financial interest, will not receive any compensation or other remuneration that is contingent on any client's purchase or sale of a financial product. The advisor will not receive a fee or other compensation from another party based on the referral of a client or the client's business.

Here are questions you can ask to help determine if a particular advisor or advisory firm is right for you.

Background Experience

  • What is your educational background?
  • What are your financial planning credentials (designations) and affiliations?
  • How long have you been offering financial planning services?
  • Describe your financial planning work experience.
  • Describe your typical client.
  • Do you have clients who might be willing to speak with me about your services?
  • Will you provide me with references from other professionals?
  • Have you ever been cited by a professional or regulatory governing body for disciplinary reasons?
  • Why did you choose to become a financial planner?

Business Practice

  • How many clients do you personally work with?
  • How many clients does your firm work with?
  • How often do you communicate with clients?
  • Are you currently engaged in any other business?
  • Will you or an associate of yours work with me?
  • How do you handle conflict and disagreement?
  • Will you sign an oath to act as a fiduciary?
  • Do you have a business continuity plan?
  • What would make our partnership a success?

Compensation

  • How is your firm compensated, and how is your compensation calculated?
  • Can I see the agreement describing your compensation and the services that will be provided in advance of the engagement?
  • Does any member of your firm act as general partner, participate in, or receive compensation from investments you may recommend to me?
  • Do you receive referral fees from other professionals?
  • Do you receive on-going income from any mutual funds you recommend?
  • Are there financial incentives for you to recommend certain financial products?

Services

  • Do you offer advice on all the areas of financial planning?
  • Do you provide a wide-ranging, written analysis of my financial situation and recommendations?
  • Does your financial planning service include recommendations for specific investments or investment products?
  • Do you offer assistance with implementation of the plan?
  • Do you offer continuous, on-going investment advisory services, including advice on non-investment-related financial issues?
  • Do you take custody of, or have access to, my assets?
  • What is your overall investment philosophy?
  • If you were to provide me on-going investment advisory services, do you require “discretionary” trading authority over my investment accounts?
  • Can you provide a sample portfolio?

Keep in mind that many of the questions above do not have “right” answers. Your goal is to understand what the advisor will be doing for you, and to determine whether the advisor will be working in your best interests. An answer requiring an explanation is not necessarily a cause for concern. Give the prospective advisor an opportunity to explain his or her responses, and ask yourself, “Can I have a long-term relationship with this advisor?”

Selecting an advisor is an important decision and developing a relationship takes time. Make sure you select an advisor with whom you are willing to devote the time and energy necessary to establish a long-standing relationship built upon trust and confidence.

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