If you’re an accredited investor, you have a world of options beyond investing in publicly traded stocks, bonds, and mutual funds. Weeding out the good from the bad investment opportunities will take some financial acumen.
A financial advisor can help. But not all professional titles are created equally and not everyone with a legitimate-sounding title has your best interests in mind. While some designations require examinations, experience, and ethical standards, others don’t.
To know who you are dealing with, the Securities and Exchange Commission (SEC) cautions investors to look beyond a financial professional’s title to determine if they are trustworthy and can provide what you need
In the colloquial sense, financial advisors can really be anyone. Someone with more experience than you can act as an advisor on financial decisions. That does not make them qualified to do so.
Ideally, you hire a financial advisor who is certified and bona fide with education and experience. Unfortunately, that experience won’t tell you who just finished two years in Club Fed for embezzlement.
How do you find a great advisor? Personal recommendations are a great place to start. The National Association of Personal Financial Advisors is also a good resource. And finally, you should come prepared with a list of questions.
Hiring a financial advisor is somewhat like hiring a nanny for your kids. You want someone you can trust. They should have a good reputation and solid references. You’ll want a proven track record of quality advising. Of course, you’ll need to select someone who won’t nip from your nest egg when you aren’t looking, too.
Never be afraid to ask questions and request proof. In fact, a good financial advisor will already have it ready for you.
In 2020, the SEC clarified its rules on the use of the term “advisor” by broker-dealers. Still, Investor.gov defines an investment adviser as a firm or person that provides investment advice in return for compensation. Pretty broad strokes.
It’s important to know that neither the SEC nor the North American Securities Administrators Association (NASAA) endorse any titles for financial professionals. So, when it comes to entrusting someone to deliver advice about investments, it’s on you to look beyond the titles and do the research.
A reputable financial advisor should have at least one acronym following their name. Most will have CFP. This stands for Certified Financial Planner. The designation shows they’re licensed, regulated, and required to pursue ongoing education. If you have questions about other designations, ask them to explain.
Should you find yourself feeling suspicious about an advisor’s credentials, you’re probably talking to the wrong person. Still, due diligence matters under the best of circumstances. The Financial Industry Regulatory Authority (FINRA) has a nifty “ask and check” function, so you can look up an investment adviser ahead of your face-to-face. Are their certifications current? Such verifications should take place before you hire a financial advisor.
Check it out, and while you’re at it, consider running a background check. It’s perfectly normal and within your rights. If a CFP has been disciplined, you can find out from the CFP Board.
On the one hand, advisors are just like any salesperson. A general rule of thumb is that someone paid on commission may have the incentive to work harder to earn their keep than someone who is guaranteed a flat hourly rate. Their success is directly proportional to the success they create for you.
But be aware that some commission-based advisors combine sales techniques with their other services, and someone working for commission may have the incentive to “churn” your account. Before you hire a financial advisor, you must understand their business model. Then you need to decide if you are comfortable with it.
Don’t confuse a broker-dealer with an investment advisor, either. There is a world of difference between these two professions.
A fiduciary is a financial professional who must, by law, have your best interest at heart. If you’re going to hire someone to look after and help build your financial future, that’s the type of person you want on your team.
Request a copy of an advisor’s code of ethics and make sure the language includes a commitment to prioritizing your needs and a fiduciary responsibility to recommend a course of action that will be best for your money. Not being a fiduciary is a dealbreaker, so walk away. Keep in mind that skills and credibility play as big a role as professional designations. Go for the trifecta.
A financial advisor worth their salt will have documentation available that lets you examine her track record. Documents like a quarterly trading report, for instance, may prove helpful.
If you don’t understand all the numbers and jargon, don’t hesitate to ask questions. Ask about the reasoning behind this or that investment. Locate where the fees were taken out. Make sure that you will always have access to similar reports pertaining to your own investments for tracking and record keeping.
Some financial advisors only work with certain types of clients. They might have the bulk of their experience in one particular asset class, like real estate or insurance. Some specialize in specific strategies, like index investing or global diversification. Their investment philosophy should intersect with your financial goals.
Even as an accredited investor, certain advisors might remain out of reach. Some set their own net worth or experience stipulations. Understanding where they stand will help you determine if it’s a good fit.
It’s important that your financial advisor has a background in areas that relate to your financial situation and your goals. Discuss education, work history, previous investments, and areas of concentration. You’ll want someone who can advise you because she has been there and done that – not someone who thinks they can if they give it the old college try.
Once you feel confident you’ve found the right individual or firm, your advisor-client relationship can grow. The right advisor will want to get to know you and learn your values, concerns, and goals for the future. They should have no problem being transparent with you about their strategies. They should be approachable, available, and ready to answer your questions.
Your relationship with your advisor will ultimately be driven by mutual trust and respect. But before you get in that car, make sure it’s worth the ride and heading in the right direction.
Want to improve your financial literacy beyond these money basics lessons? Make sure you check out the Financial Poise On-Demand Webinar Series. From how to invest to how to build a business, the topics covered are all but endless! Click here to learn more about our offerings.
This is an updated version of an article from 2019. ©2023. DailyDACTM, LLC d/b/a/ Financial PoiseTM. This article is subject to the disclaimers found here.
With a Master’s degree in Journalism and extensive experience as a freelance writer and editor, Alicia has found success across genres including: news, business and finance, government/politics, faith and family as well as blogging.
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