Why should you carefully research before choosing a financial advisor? Just ask the many supposedly savvy investors who lost millions entrusting their money to investment-fraud perpetrator Bernie Madoff. Your choice of advisor can mean the difference between securing your retirement and spending your golden years working at Wal-Mart.
Here are some basic steps to take to select the best advisor for your situation:
- Check credentials: Many people don’t realize that anyone can hang out a shingle and call himself a financial advisor. How can you tell these operators from a qualified pro? Professional financial advisors undergo training and earn specific certifications in their field, such as CFP (certified financial planner), RFC (registered financial consultant), or ChFC (chartered financial consultant), considered the advanced credential in this industry.
- Check for complaints: Have previous clients lodged complaints against an advisor? If the advisor has professional designations, you may be able to check with the organization that issues the certification, such as the Certified Financial Planner Board of Standards or the International Association of Registered Financial Consultants. You can also check your local Better Business Bureau. Complaints against federally registered financial advisors may also be made to the Securities and Exchange Commission, where you can get investor information.
- Check references: Once you’ve found an advisor you’re interested in, it’s time to get the names of several clients, and not the personal friend who referred you to the advisor. Then ask a lot of questions. What kind of results are they getting, and how do those compare to market averages? How available and responsive is the advisor? How long has the advisor been managing their money? Is the advisor a team player, working well with the client’s accountant, attorney, or other advisors? Do they plan to continue using the advisor? Do they seem to be staying up with trends and changes in the investment marketplace?
- Check for business savvy: The investment needs of entrepreneurs and business owners are different from those of employees who might have much of their retirement funds managed through a company pension or a 401(k) plan. Be sure your advisor has experience handling the investment needs of business owners.
- Check for the value-add: The most important question to ask is what kind of returns an advisor’s strategies are delivering. Remember that using a financial advisor will cost you money, so the advisor’s performance should exceed what you could achieve by, say, simply buying a broad stock-index fund and riding the market. Otherwise, you’re just taking on additional risk and very possibly coming out behind where you would have been if you’d invested in some basic conservative categories on your own.
- Check for the right fit: Businesspeople invest in a variety of areas, depending on their appetite for risk. By the same token, financial advisors have varied expertise in the various asset classes. You might be interested in investing in real estate, hedge funds, metals, short-selling stocks, corporate debt, or commodity futures, either domestically or abroad. Your advisor should have extensive experience in the investment areas you are interested in pursuing.
Business reporter Carol Tice contributes to several national and regional business publications.