Choosing a financial planner can be the single most important decision in your life. Don’t believe me? Ask anyone that was a client of Bernie Madoff’s and you’ll see the importance behind it. To give those victims some credit, it’s tough to know when someone is an outright crook and liar. Just like those people, many others don’t take enough care in selecting their advisor.
MarketWatch.com senior columnist Chuck Jaffe sometimes speaks to audiences on this topic, and when he does, he likes to conduct an informal poll. First, he asks people to raise their hand if they have ever worked with a financial advisor. Many hands go up.
Next, he asks these people to keep their hands in the air if they hired the first financial advisor they met with in their search. Few if any hands are lowered. Then he asks them to keep their hands up if they did a background check on that person before agreeing to work together. After asking that question, Jaffe writes, “I have never had a single hand stay in the air.”
How Credible Are they?
When it comes to the “alphabet soup” of financial industry designations, some of them carry more clout than others. Some of the most respected professional designations are Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC) and Chartered Financial Analyst (CFA). These designations are earned only after thorough examinations and a required curriculum of college-level studies in financial planning applications, retirement, insurance and estate planning fundamentals and other topics. Real-world experience must also complement this course of study.
Beyond a financial professional’s credentials and designations, you have the matter of compatibility. You don’t want to work with someone who insists that you fit into a preconceived box, for you are not simply Investor A, Investor B or Investor C who deserves this or that generic strategy. Better financial professionals really get to know you – and they will not be offended if you make the effort to get to know them.
This is a relationship-based business, and when a financial consultant offers a thoughtfully considered, personalized strategy to a client resulting from one or more discovery meetings, he or she has taken a step to earn the respect and trust of that client. Finer financial professionals abide by a client’s preferences and risk tolerance and take the client’s values, needs and priorities into account.
Background Check on Your Financial Advisor
You can visit www.finra.org (the Financial Industry Regulatory Authority) and use FINRA BrokerCheck to see if anything questionable has occurred in their career. If that financial professional is an investment advisor, you can go to the Securities and Exchange Commission and look at that advisor’s Form ADV at advisorinfo.sec.gov. Part 1 will tell you about any issues with clients or regulatory agencies; Part 2 will tell you about the advisor’s services, fees and investment strategies.
In addition, AARP offers you a Financial Adviser Questionnaire, and websites like abika.com, paladinregistry.com and advisorbackgroundcheck.com can provide you with further information.