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 plannerSophia 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 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 theFinancial 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 much do you charge for your services?
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 , 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.
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