How do you find the right financial adviser? That depends--on your goals, your needs, your personality and the style of the adviser you choose. Most experienced advisers are specialists of one sort, so the adviser your adult child or next-door neighbor raves over may not work at for you.
The needs and interests of someone in their 50s and beyond are usually quite different than during the years you were accumulating your retirement assets, and the adviser you choose needs to be on board with those needs.
Finding the right adviser
The best ways to find the right adviser are to:
- Ask a lot of pointed questions--and we've provided you a short list and a form you can print out and add to.
- Ask for referrals from people whose place in life and goals and needs are similar to yours.
- Interview at least three advisers.
- Consider, but don't be overwhelmed by, professional designations.
- Never go with an adviser who makes you uncomfortable or seems to push investments or insurance choices you don't like or don't understand.
Why? Here's a story from Richard J. Martin, CFP®, an adviser in Columbus, Ohio:
"I have clients who were 'burned' last year by a so-called financial adviser. ... Formerly, the clients had a 5.5 percent mortgage and over $85,000 in equity. The 'adviser's' concept was to pull the equity out of the house and 'leverage it into life insurance' on a tax-deferred basis. One year later they had:
- Line of credit of $75,000 at a 7.75% rate
- New first mortgage at 8.25%
- $755,000 of life insurance with an annual premium of $54,000 for him
- $280,000 policy with $24,000 annual premium for her.
"There is no way they can afford these policies so the money is gone."
What should you ask?
Choosing an adviser is a two-way street -- you choose and so does the adviser. So you need to ask the adviser pointed questions and also ask yourself some hard questions as well.
Questions for the adviser
There are lots of questions you might ask, and here are some of the key ones:
- Will you provide references?
- What are your specific areas of expertise?
- Have you ever been formally disciplined? By what organization? Why?
- What qualifies you to provide financial advice to someone in my place in life?
- What are your professional credentials and qualifications?
- How are you paid?
- How will I see what you are being paid on my behalf?
- What is your approach to financial planning?
This is far from a complete list. For more specific questions and a handy sheet you can take to each adviser interview, click here.
Why is it so important to ask the right questions? According to Linda Rhea, CFP®, in Denver, Colorado, because "not all planners suit all clients. If you are in your 50s or 60s or beyond you need a planner who understands your needs and goals. And what you need is very different from what a 30-something needs. I had a 62-year-old client come to me once, in tears, because her $625,000 retirement account rollover had lost 30 percent of its value in two years. When I analyzed the investments I was horrified. She was in actively traded stock accounts, options, real estate investment trusts and limited partnerships -- a mix even a 30-something probably wouldn't be happy with. Much too aggressive for her!"
Questions for yourself
Don't forget to ask yourself some questions, too:
- Am I comfortable with this person?
- Does he or she understand my goals and share my views, or just toss out a formula?
- Have I been open and honest with him or her?
- Can I articulate and write down my goals for him/her?"
What credentials should you look for?
In the financial and insurance worlds, designations indicate education and/or passing a test; rarely are they awarded based on years of experience. A recent college graduate who likes to study and take tests can amass an impressive array of adviser-related letters after his or her name. Designations should match your needs and goals.
Most advisers will recommend you choose an adviser with at least a few designations, so here are some of the most common ones and what they may mean to you:
- CFP®--The Certified Financial Planner certificant: someone who has completed a several-year program of study encompassing a broad range of financial and insurance areas.
- ChFC--Chartered Financial Consultant: an educated, experienced and qualified specialist committed to the financial well-being of your family, your business and yourself. Investment focus.
- CLU--Chartered Life Underwriter;:an educated, experienced, and qualified specialist committed to the financial well-being of your family, your business and yourself. Life insurance focus.
- CSA--Certified Senior Adviser: someone who has taken a course of study focusing on areas of interest to seniors, such as long-term care, estate planning and similar topics.
- CLTC--Certified in Long-Term Care: a short course (two-day) emphasizing long-term care insurance.
- RIA--Registered Investment Adviser: not a true designation, but rather an indicator that certain federal forms have been filled out and filed.
Check 'em out
No matter how well the two of you "click," always check on an adviser's regulatory history. Go to the following sites:
National Association of Securities Dealers (NASD)
1 800 289-9999
http://www.nasdr.com
North American Securities Administrators Association (NASAA)
www.nasaa.org
Securities and Exchange Commission (SEC)
1 800 732-0330
www.sec.gov
Certified Financial Planner (CFP) Board of Standards
CFP referrals and licensing confirmations.
1 303 830-7500
www.cfp-board.org
The role of a fiduciary
Many so-called advisers are simply agents of a third party. A full-service adviser assumes responsibility for the quality and suitability of the advice he or she gives and the recommendations made. This is the role of a fiduciary and is important to you. Ask your prospective or current adviser how he or she views fiduciary responsibilities--after all, it's your money we're talking about.
Questionnaire
Print out this questionnaire and take it with you when you go to interview a prospective financial adviser.
- Will you provide me at least three references who have given permission to use their names?
- Do you have experience in providing advice on the topics below? If yes, please indicate the number of years.
Retirement planning ________
Investment planning ________
Tax planning ________
Estate planning ________
Integrated Planning ________
Other __________ - What do you believe qualifies you to give me financial or other planning advice?
- How long have you been working with clients in my situation/position in life?
- What is your specific area of expertise?
- What credentials do you hold related to giving financial advice?
- How are you paid? Do you charge an hourly rate, flat fee and/or commission? What are these amounts?
- Are you a Registered Investment Adviser or affiliated with an advisory firm? May I have a copy of your form ADV?
- Do you always disclose in advance, and in detail, the compensation you receive from activity in your clients' accounts?
- Would you please describe your approach to financial planning?
- May I have the answers to my questions in writing?
- Have you ever been disciplined by the NASD, SEC or professional organization or board?
- How do you handle good and bad news about my investment performance?
- How often do you schedule portfolio reviews?
- List your questions:
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