One of the most
important factors in deciding when to enlist the assistance of a financial
advisor for many people is their own time and resources. In today’s
world with countless television shows and books dedicated to financial
planning and strategies, many people have educated themselves about
different areas of their financial life and how to tap the self help
resources at their disposal. However, a good number of these individuals
are too time pressed to dedicate the hours necessary to properly monitoring
and adjusting their portfolio holdings.
Individual investors,
especially those approaching retirement, may also be looking to transition
from simply investing to a more holistic approach. In fact, according
to the recently released 2006 Merrill Lynch New Retirement Study,
people who have a financial strategy in place are more likely, by
better than a five to one margin, to have confidence that the transition
to their next life phase will be a smooth one.
If you want to
maximize the time you spend on money matters and focus more on your
long term financial goals, a financial advisor can be an essential
partner in putting an effective strategy in place.
Because the partnership
you’re likely to have with your advisor is for the long term,
it’s important to give careful consideration to choosing the
right one.
Starting Your Search
One of the best
ways to begin the process of selecting a Financial Advisor is to ask
for referrals from friends and trusted colleagues who have financial
situations similar to your own. Inquire about the length of the relationship,
investment performance in bull and bear markets, and how frequently
they typically communicate with their advisors.
Existing relationships
with professionals such as your attorney or CPA are another excellent
source of referrals. Given their knowledge of your individual circumstances,
they can likely provide the names of several advisors who may be a
good match for your needs.
Factors to Consider
Once you’ve
assembled a short list of potential advisors, the next step is to
arrange face to face interviews to ask questions and get to know a
bit about each advisor. Be as diligent with this interview process
as you would with any other professional. Although much will depend
on your personal chemistry, there are several key areas to cover in
your interviews.
Below is a short
list of questions you should be sure to ask. Keep in mind this is
a starting point—you should ask any questions that will give
you the sense of confidence that they are equipped to help you achieve
your financial goals.
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What
do you consider to be your key qualifications for advising clients
on financial strategy?
Look for an advisor with proven experience across a range of planning
areas, including investing, retirement and estate planning, tax
strategies and insurance. Ask what steps he or she takes to stay
current with legislative changes or other developments that may
impact the effectiveness of their financial advice.
-
How
long do most clients typically stay with you?
You’ll want to see that an advisor has long standing client
relationships as an indication that he or she is honest and effective.
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What
services do you provide and how do you work with other professional
advisors?
In addition to investment management, some advisors also specialize
in areas such as estate planning and insurance. A good advisor should
have a working knowledge of all financial matters, but serve more
as a diagnostician and strategist rather than a singular specialist.
In working with your other professional advisors, your Financial
Advisor should be able to function as a “quarterback”
and help coordinate the activities of the team.
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What
professional accreditations or designations do you have and how
do those help you serve your clients?
There are a number of certifications that advisors might earn, such
as CFP (Certified Financial Planner) or CFA (Chartered Financial
Analyst). They also might belong to an organization such as CIMA
(Chartered Institute of Management Accountants). Any of these designations
show that an advisor has undertaken additional education and training
to help them be a more strategic partner for clients.
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What
is your investment approach?
Because clients have different portfolios based on their individual
goals, you’ll want to see that this advisor is able to craft
a strategy based on your unique circumstances. Ask the advisor to
construct an investment proposal tailored to your financial needs
and evaluate how well he or she factored in your personal goals,
timelines and risk tolerance.
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How
long have you been with this firm?
Length of tenure is one indication of an advisor’s commitment
to a current firm, so ask about his or her start date. You may also
inquire about how many different firms the advisor worked at in
the last five or 10 years to get an idea of employment consistency.
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Have
you had any disciplinary actions from government or industry regulators?
It’s preferable for an advisor to be forthright, but you can
check up on this kind of information through online resources at
the National Association of Securities Dealers (www.nasd.com)
or the Securities and Exchange Commission (www.sec.gov).
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Who
else will I interact with at the firm?
Many larger practices will have a team on hand to assist with client
needs. Ask to meet some of the team members who might be working
with you should you become a client. Also ask about how often you’ll
have direct access to the financial advisor to ensure your comfort
level.
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How
are you compensated?
Typical arrangements include a fixed percentage of assets under
management or commissions on transactions. If you anticipate doing
a lot of trading within your portfolio, paying your advisor a fixed
percentage of assets might be a better deal for you; if you prefer
more of a buy and hold approach, paying a commission on transactions
might work better. Also ask about special compensation the advisor
may receive for selling particular financial products.
Once you’ve
gathered all of the above information and weighed your choices, it
will likely become clear that a particular advisor stands out from
the others. Your next step will be to return for another interview—but
this one will likely have you answering most of the questions as you
begin to partner with your Financial Advisor to craft a strategy that
can help you achieve your most important financial goals.
The 2006 Merrill
Lynch New Retirement Study: A Perspective from Individuals and Employers
was released in May 2006. For more information on the study, visit:
www.totalmerrill.com/retirement.