How to Choose a Financial Advisor

About a year ago I was waiting for someone at a local restaurant. I looked around and couldn’t help but notice… this place is full of financial advisors. We know our own, and we all dress pretty similar in the daylight. If I were a potential client, I thought, how would I know how to choose an advisor?

Here are some important considerations:

Should I choose an Financial Advisor by referral?

What is the referral based upon? Dig deep when an advisor is suggested, as people can be overly eager to give a referral based upon familiarity alone. Relationships can be easier to get into than get out of, something we all have a story about.

Also, remember that what works for one client often doesn’t work for another. While your life stage may be similar to your peer group, your economic circumstances can be more dramatically different than you think. You also may not be comfortable dealing with the same person as others in your social circle.

Though reputation is a good place to start, make sure to pick three advisors who are properly licensed for your needs and interview them. Don’t forget to ask them how they are compensated. If they cannot take a fee for advice, they are held to a suitability standard not a fiduciary standard. Suitability means that the transaction/recommendation has to make sense. The fiduciary standard means that it has to be in the client’s best interests exclusive of whether the advisor gets paid or not. It’s not uncommon that the best interests of a client are served without a transaction at all. A client commonly may not need a change of investments or insurance, just reinforcement that they’re doing the right thing. In these circumstances, a transaction can be made to “make sense” while also not meeting the fiduciary/best interests standard.

If they are a fiduciary, ask for their ADV Part 2 if you want to see all the fine print and conflicts of interest. They’re always present. In my view, it would be extremely foolish not to read this document before choosing your advisor. If an advisor doesn’t have this in paper or electronic form, or has no idea what you’re talking about, they are NOT a Registered Investment Advisor, therefore not held to a fiduciary standard by their firm. It doesn’t make them unethical, but you may want know that the firm they deal with holds them to the highest standard of care for the client.

Does the Firm Matter?

Yes, they all train and push different things. What you need may not be offered or delivered in the way your want it because of the amount of control they want to exert over advisors’ sales activities. Also, take the time to understand the firms technology you will be interfacing with. Some firms (even the big ones) are still trying to develop their technology in house and don’t understand they’re falling behind more every day.

What licenses and certifications matter the most?

LICENSES

This depends on your needs, but generally anyone who holds a series 6 and life and health licenses is focused on mutual fund sales and insurance. This is an indication that they work for a firm that is primarily insurance driven and you’ll likely notice that in your interactions. If you want to purchase individual securities or ETF’s with your advisor being able to place that trade, consider looking to an advisor who has a series 7, and you’ll be able to do things that are more unique to you. You’ll be better off with a series 7 licensed advisor if your priority is customization and tax efficient strategy for non-IRA assets.

Without a series 6 or 7, you’re probably dealing with an insurance salesperson. You can’t typically get anything with them (other than property casualty insurance, in some cases) that you can’t get through an independent financial planner. With the planner you get a relationship that can grow with you as opposed to a transaction that may be out of context with what you’re doing in other parts of your plan. Also beware that it is permissible for a life and health licensed agent to sell fixed and indexed annuities. It’s my view these sales would not often pass a fiduciary examination. They may be sold by agents and brokers who are not Registered Investment Advisors, and therefore only adhere to a suitability standard.   (See the “Free Steak” Blog)

CERTIFICATIONS

There are many respected designations in financial services. Below is a list of the big ones, with hyperlinks to more information. We’re dedicated to having a collaborative culture with complimentary certifications, licenses, and client specialties. That’s what MPW is meant to be- a home for great advisors who require vast resources. The advisors are the brand and our culture and toolkit are their advantage.

CFP ®–  Certified Financial Planner TM

CIMA-Certified Investment Management Analyst

ChFC– Chartered Financial Consultant

CPWA– Certified Private Wealth Advisor

CFA– Certified Financial Analyst

It’s important to note that designations represent a body of knowledge and commitment to our profession but could be of less value than an advisor who has a particular specialty or expertise that fits your needs.

FINRA does not list an advisor’s certifications, which does you no favors. You can use their brokercheck tool to see our licenses, work history, and any reprimands, but we have to list the letters next to our name for you to know if we have any certifications.

Do I need to like him/her or trust him/her?

You want to work with people you trust and respect. “Like” can follow later or you can move your accounts elsewhere if you advisor just rubs you the wrong way.

Am I ready for a financial advisor?

Probably, but the problem is you don’t know what you don’t know. Find someone who takes the time to understand what you value and where you want to go. Trust your senses if an advisor seems over-eager or attempts to impress you. They are either green or desperate. It’s OK to be green, we all start somewhere. Desperation, on the other hand, could lead to advice that’s against your interests. Additionally, be weary if the advisor seems like they can’t wait to see your investment statements.

What types of clients does the advisor specialize in?

This is a big one! You may fall into a group because there’s some complexity to what you do or you may work for a company that has some unique benefits. There’s a tremendous amount of variation to clients and companies in Memphis. As a sidenote, if pensions are in your future and/or you are a reservist or a military retiree, I specialize in that, especially related to pilots. I’m also a bit of a whiz on employee stock options.

I have to take this shot, I cannot resist…

If an advisor advertises that they only work with clients who have $500k this doesn’t mean they specialize in everyone (or anyone really) who has the required minimum. It does mean that they are more interested in applying their asset management services than the other needs of your plan.

All MPW advisors are Series 7 registered, have advanced certifications, and are Investment Advisor Representatives who are held to the fiduciary standard. We’re honored to be considered as a guide for your financial journey, and welcome you to contact us for a complementary 1 hour review.