• September 13, 2021

Choosing a Good Financial Advisor: An Attorney’s Perspective

Choosing a good financial advisor and finding the best one for you is a lot like interviewing job seekers; you are the employer and the advisor is the employee. Working in the area of ​​estate planning, I can offer some criteria that I look for in light of my experience working with financial professionals.

Here are seven tips for “interviewing” candidates competing for your business:

(1) Qualified referral: Did the candidate come to you or contact the candidate based on a qualified recommendation? By “qualified referral,” in other words, is the candidate someone who was recommended to you based on proven success with your clients, or is he someone who was recommended because of a person you trust making a recommendation? Keep in mind that consultants are in a business that relies heavily on referrals. The advisors are also in “sales”. Therefore, they frequently request referrals from new clients who have not yet “rated” the referral based on empirical evidence of their advisor’s actual performance, even though the client may have received good advice or service and therefore wants to promote. to your advisor.

(2) Objective Ratings: There are sources like AM Best and TheStreet.com (formerly known as Weiss) that rate financial companies with an A, B, C, (+/-) system. These are useful to know if the advisor works for a well-qualified company or firm. However, at least with AM Best, insurance and financial companies pay to have their ratings published, which then calls into question objectivity. Therefore, trust more than one rating source. There are also reports from the Better Business Bureau (BBB), the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA), as well as the Federal Trade Commission (FTC) that announce irregularities committed by companies. financial among others. Searching through the above will at least reveal any “red flags”.

(3) Compensation-Driven Advice: Unfortunately, those in financial positions may want other sales-related industries to come under scrutiny. When it comes to making financial recommendations, the assessors’ own compliance dictates acceptability, to some extent, based on whether the recommended product passes a “suitability” test. Therefore, the SEC has some consumer protections built into its regulations. However, the financial industry is very smart about making product recommendations that can circumvent suitability restrictions by trying to stay one step ahead of the SEC. As such, know how much your advisor makes on the deal, as well as exactly what your company’s share of compensation is. The lesson of the past is that advisors are known for making recommendations based on compensation.

(4) Don’t be fooled by guarantees of any kind: If your advisor guarantees something, be very skeptical. Some financial instruments, such as the cash value in a whole life policy, may have some degree of guaranteed principal protection. However, with any third party that has your money or assets, even if the FDIC is insured, there are no 100% guarantees, although there are some financial instruments that are safer than others (those insured by the FDIC are relatively safe). In fact, promises of guarantees on products or financial plans that are not financial can cause problems for an advisor with their regulatory agency.

(5) Good reputation: It is not offensive to simply ask about the good reputation of a licensed consultant and / or any disciplinary action that has been taken. You can even request that you provide documentation showing a “clean record.” Why not? Employers get background checks on employees. Right?

(6) Who is on the advisor team: Get to know all the “players” on the advisor team who will be a part of making recommendations and managing your account. Does your business have someone watching your money all the time? Will your investments be risk assessed frequently and precautions taken before market crashes like the one experienced in 2008 and 2009?

(7) Availability and Specialty – If your advisor or someone on their staff does not contact you before the end of the day or at least first thing in the morning, this is cause for concern. Good advisers tend to get back in touch with their clients within 24 hours of being contacted, usually the same day. On another note, your advisor specializes in anything important to your needs. It is one thing to have an advisor who “takes care of your needs”, but does he have knowledge of the desired products and the areas that are important to your balance sheet, such as variable annuities, variable life insurance, long-term care insurance, ETF? etc., or college planning, distribution planning, aggressive growth investing, commodities, etc.

In addition to these seven tips, make sure your advisor handles bad recommendations and is modest with good ones. These indicate someone who is probably more responsible and less of the defensive or ego-driven type. If not, it’s nice to know that someone will do their best when things go wrong.

Ultimately, there will be good and bad advisers; The advisor who is good for you is just as important as choosing someone who is “good.” It is essential that a professional recommend the best products to achieve your goals and protect your money. Therefore, doing some of your own due diligence on financial products is a good idea despite seeking an advisor for their opinions. The money and finance section of your local bookstore should have good publications to help you. In the end, seek a neutral opinion from someone outside the financial industry who has no reason to defend or criticize the companies or the advisors themselves. People in the finance industry can have a tendency to protect their own or criticize others too quickly. After the recent aftermath of this recession, caution and deliberation with your current advisor or in the search for a new one are well warranted.

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