Tips for Finding the Right Investment Advisor Part 2
Markets got you down? Now may be a good time to team up with a good investment advisor – Part 2
Andrew Horowitz
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Tips for Finding the Right Investment Advisor Part 2
Part II: Finding the Right Advisor
We continue with Part 2 of How to find a good investment advisor, which I took right from Chapter 9 of my audiobook, The Disciplined Investor – Essential Strategies for Success.
We left off with Part One, which covered advisor basics…the things you need to look for in an advisor. Now we will explore some tips to finding the best advisor to work with. The key word there is WITH. This should be a team effort as you need to be involved.
You need to take some time to assess what type of investor you are. Once you have a good idea, start to think about whether or not you want to even consider using an advisor. Either way, you now have a good base of knowledge and are on the road to becoming a Disciplined Investor.
What to Look for In An Investment Advisor
If you feel that you would like to explore the advisor route, here are a few important points you can use as a checklist in the interview process. These are the main areas to focus on, though they are definitely not the only ones you should ask about. A capable advisor has any number of the following to his or her credit:
- Certified Financial Planner™ (CFP) certification
- Experience
- Independent status
- Full-time status
- State insurance license
- An excellent and well-supported reputation
Not all of these are requirements. For example, if you are only interested in an advisor working with your investments, an insurance license may not be of consequence. On the other hand, a full-time status is non-negotiable. There is no way that this important profession can be moonlighted. If someone tells you that they can help you in their spare time, run fast. Look once more at the list. CFPs occupy the first position for one good reason: They are committed and hard working enough to pass the rigorous and exhaustive examination process that comes with the territory.
Why CFP Certification is Important
Becoming a CFP certificant is not easy, as evidenced by how relatively few there are in this country. To put this into perspective, it is reported that as of 2007, there are approximately 50,000 Certified Financial Planners as compared to over 500,000 Certified Public Accountants (CPAs). The main benefit to the consumer is that the CFP certification is a sign that shows advisors who are serious, committed and careerminded. Of course there are also several other designations that may help to identify qualified advisors such as ChFC, CLU, PFS, CFA, among others. However, realize that “qualified” does not necessarily mean they are “good.”
CFP certificants are usually able to take a broader and more balanced look at your goals, your future, and your investment needs. They are also better equipped to provide you with a wide range of non-investment-related services. The curriculum they study covers the gamut of financial planning matters, which is in sharp contrast to similar certifications that focus more time on insurance sales and marketing.
Experience Gets You Better Advice
Expert financial advice is a lot like major league pitching: experience plays a huge role. A rookie is far less likely to construct a time-tested and watertight plan for you than a seasoned veteran. As a rule of thumb, you should seek out an advisor that has at least five years of service under his or her belt.
Independent Advisors Give You Better Options
Independent advisors are also better equipped to meet your needs than those who are associated with a big insurance or brokerage firm. This is because advisors who work for one of the big names on Wall Street may be required by the company to sell you many of the products that their company markets.
These are usually termed “proprietary.” For example, if the brokerage firm your advisor works with is Worthmore Investments and the fund she recommends is the Worthmore Stock Fund, start asking questions. Is there a financial incentive or bonus for the recommendation of this investment? How does it stack up against its peers? Are the fees competitive? What are the other options and why are they not being presented?
What if there is a cheaper financial product offered by a competing firm, but you have been pigeon-holed into buying the more expensive one from your advisor’s affiliated company? Who is benefiting from this? Basically, an independent advisor is not hindered by a narrow range of products and services. He or she does not try to pound a square peg into a round hole. At some point in the life of many successful advisors, there comes a time when a great deal of the work can be pawned off on an assistant or rookie partner. The trouble with an advisor who spends more time away from the desk than at it is that he or she may often miss investment opportunities that could have served you quite well.
More to Look For in An Investment Advisor
Choose an advisor who spends at least 8 to 10 hours per day directly serving the needs of their clients, rather than wearing the hat of the firm marketer. Unless there is a staff member or partner that you have agreed to work with in advance, your advisor should be the primary contact for your finances.
Of course, for the administrative matters, the advisor may not be needed, so make sure you develop a good relationship with the office administration and staff. Though you may not think so at first, they are a key component to your long-term success.
A state insurance license means that your advisor deals with more than just market investments—it means that they can provide a whole host of value-added services to help you meet many of the needs that will help protect your money. Most effective asset allocation plans include some kind of insurance. Can your advisor provide that for you?
The final point is the most traditional and the most important. Choosing an advisor, like choosing any product or service, is still essentially a “smell test.” It is still a good practice to ask a friend or get a professional recommendation. The process still comes with an awful lot of gut feeling. You can find an advisor who has the world’s greatest track record behind them, but if you are not comfortable in their presence, keep looking.
Continue to ask your friends about their advisors. Find out what they like or dislike about them. Then, interview two or three of the best candidates for the job. Hold yourself back from picking the one with the cheapest services because you are most likely to get what you pay for.
Never underestimate the importance of written materials. If a potential advisor has written and published articles, a book, or a newsletter that you can read—something more than a shiny and colorful brochure—at least you can see what areas they have specific knowledge an expert in something.
Cha-ching! That’s all for now, courtesy of Andrew Horowitz, your guest host for Money Girl’s Quick and Dirty Tips for a Richer Life.
As I had promised, some important information…in fact two items for you…As you know, I am the guest host and that means that my time filling in for The Money Girl is almost up. I hope you have enjoyed and learned from the dozen or so shows I have created. Now is a great time to subscribe to my podcast, The Disciplined Investor on iTunes. It is free and you are sure to get a few investment tips along the way. Or keep tuning in to my regular show on Quick and Dirty Tips, The Winning Investor.
The next episode of The MoneyGirl will introduce the permanent host that has been working hard to bring you great money tips. Her name is Laura Adams and next episode, we will both be here to share with you our favorite sites and resources for finance and money.
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