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Financial advisers have gotten a bad rap since the recession hit. Some of them deserve it. It seems that every month there is another scam artist being hauled to jail for taking advantage of their clients. Clients who trusted them. So how do you know who to trust? There are several steps in choosing a financial adviser and none of them involve a short term decision.
The main thing you are looking for is a professional that can guild you through the good times and bad. Do some research yourself so you know the basics. When you meet with a financial adviser, pay attention to their presentation and take notes. Below are a few questions you should always ask:
Ask how they are paid? Advisers that are paid on commissions can do just as good of a job as an adviser that is paid a fee, but fee based advisers are usually less expensive.
What licenses do you hold? There are two types of financial advisers. The first has a series 6 and 63 and life insurance licenses that allow them to sell mutual funds, annuities, IRAs, and life insurance. These advisers are fine for the average person, but keep in mind that they are probably newer to the industry. It is also a lot easier to pass the tests for these licenses.
The second has a series 7 and 63 or 66 plus life insurance licenses. These advisers can sell any investment product. There may be some limitations based on who they work for. For example, Edward Jones does not allow their advisers to sell options or trade in margin accounts. Northwestern Mutual does not engage in straight stock purchases without permission from their home office making it difficult to buy at a specific price because of time delay. In either case, for most people, these are the professional advisers that you are looking for. They will have more investment options to choose from than other advisers.
Do you have any professional designations? Most of the financial advisers you meet with that have a professional designation will tell you they have it, but it never hurts to ask. Ask them to explain what it means. Most of these designations take a fair amount of time to obtain and show a different level of understanding than some of their competitors.
Why should I hire you? The single most important question. Why should you? Have them give you a valid reason. Don't let them fluff it off by saying something like, “Because I'm good at my job.” That wasn't the question. You should hear something to the effect of, “Because with my experience and what you currently have in place, I believe that i can provide you with superior service.”
Now here are some questions to ask yourself:
Do you like this person? You don't have to have a good reason not to like someone. If you just plain don't like them, you shouldn't work with them. It is very hard to trust someone you don't like and you don't want your dislike clouding any issues that arise.
Do they seem genuine? If there was anything that gave you a suspicious feeling about them, you have every right to walk away. Don't let someone guilt you into a sale. “Well I came all the way out here,” is a common one I hear people say. Who cares? That's part of their job. it won't be the first time they hear no and it certainly won't be the last.
Now it is decision time. Are you going to give this person a chance? If you are, only give them a portion of your account. If you have an IRA or and old 401K, you can roll over whatever amount you want into a new account. Make sure the they explain everything in detail, you go over past performance charts, and that you see how this compares to your current portfolio. This may take another appointment depending how prepared the adviser is. Tell them you are giving them a chance. If you feel that they are doing well for you after a year, that you will discuss moving more money over. Shake hands and part ways.
If you are not going to use them, don't waste your time or theirs. Simply tell them you are not interested, ask them to leave, shake hands and part ways.
Either way you slice it, you are a winner. You either have a great new partner to help you with your retirement goals, or you have avoided working with someone that wouldn't be a good fit for you.
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