by Jack Waymire
Whether you’re seeking your first financial advisor or replacing a terminated advisor, you need a process that helps you select the best financial advisors and reduce your risk of selecting a bad advisor.
Or, you may already have a financial advisor you like. In that case, you should be monitoring the advisor to reduce your risk of surprises that can damage your financial security.
A Winning Formula
You win when you use the Internet to find financial advisors who meet your specific requirements.
You win when you use the Internet to research the credentials, ethics, business practices and services of financial advisors.
You win when you control the interviews that provide the non-public information you need to select your finalists.
You win when your selection decision is based on factual information and not the personalities and sales skills of financial advisors.
You win when you select the advisor with the best credentials, ethics, business practices and services.
The Internet is a game-changer as long as you are willing to take the initiative to find, research, contact and interview financial advisors.
Wall Street to Main Street
The Internet is changing the way we buy all types of services and products. That is because it gives us access to the information we need to make better decisions.
In the not-too-distant past, you had to talk to a salesperson to learn more about a particular car. Today, you may know more about the car than the salesperson when you walk into the showroom to arrange for a test drive. More importantly, your online research determined which showrooms you walked into.
You are no longer dependent on information that is controlled by financial advisors – or any salesperson for that matter.
Protect Your Identity
When you use the Internet to find and research advisors, one of your most powerful tools is your anonymity. You are anonymous until you are ready to initiate contact with advisors. You choose the advisors you want to talk to. Then you send them an email, contact them through their website or pick up the telephone and call them.
There is no contact with an advisor – you are just another anonymous visitor on an advisor’s website who left and never comes back – unless your research shows that the advisor is someone you should interview. Only give up your anonymity when you feel you should.
Every advisor is going to try to convince you that he or she is a trustworthy financial expert, whether it is true or not. They know this is a critical step in convincing you to buy what they are selling.
Make sure you gather the right information when you research and interview financial advisors. Make equally sure you understand the impact of the information on your financial well-being.
Who Controls the Game?
Don’t take control of your interview and selection decision processes for granted. You are up against highly skilled salespeople who have years of experience controlling the processes that investors use to select them.
If they gain control, they win the game. And you run the risk of selecting the advisor with the best sales skills, which can be disastrous.
You have to keep reminding yourself that their sales tactics benefit them and not you.
It is your money. You decide who is going to be your financial advisor.
They follow your rules or they are excluded from your search.
Top 10 Characteristics of the Best Advisors
Fortunately, there are 10 characteristics that will help you identify and select the best financial advisors. Understanding these characteristics will also help you identify and avoid salespeople who masquerade as advisors. These characteristics are:
1. Ethics Record
The best financial advisors have clean compliance records with no client complaints or disciplinary actions. If they do have a client complaint and it is frivolous, it is not necessarily a reflection of their ethical treatment of their clients.
Your expectation: The advisor has a history of doing what is best for his or her clients.
2. Real Financial Expert
The best advisors have education, experience and certifications that make them experts in their fields.
Your expectation: Their specialized knowledge will help you achieve your financial goals.
A good professional is a Registered Investment Advisor (RIA) – firm – or an Investment Advisor Representative (IAR) – advisor.
Your expectation: The advisor holds the registration that enables him to provide financial advice and ongoing services for a fee.
4. Financial Fiduciary
This is the most important characteristic of a financial advisor. Fiduciaries are held to the highest ethical standards in the financial service industry. Only RIAs and IARs are financial fiduciaries.
Your expectation: The advisor will always put your financial interests first.
The best advisors work for you and not branch managers, regional sales managers, executives or shareholders. Their advice is based on what is best for you and not their companies.
Your expectation: The advisor provides financial advice that is free of potential conflicts of interest.
High-quality advisors volunteer the information you need to make the right selection decision. That is because they have nothing to hide. Low-quality advisors withhold information from you because they have a lot to hide.
Your expectation: The advisor volunteers factual information about his or her credentials, ethics, business practices and services.
The best financial advisors are compensated with fees just like the other professionals you depend on for specialized advice and services (CPAs, attorneys, etc.). Commissions represent a hidden risk because third parties (mutual fund companies, annuity companies) pay commissions to the advisors who sell their products.
Your expectation: You are able to compensate the advisor with a fee the same way you compensate other professionals.
The best financial advisors will fully disclose, in advance, every penny of expense that will be deducted from your accounts. Then they will disclose who gets the money and what you receive in return for your money.
Your expectation: You are more likely to trust financial advisors who fully disclose their expenses and the expenses of third parties.
The best advisors are effective communicators. They provide the information you need to make the right financial decisions. For example, they blend performance reports with personal meetings and emails so you are never left wondering what is happening to your assets and why it is happening.
Your expectation: The financial advisor will keep you fully informed at all times with reports, meetings and conference calls.
The best advisors provide wealth-related advice and services that help you achieve your financial goals: Planning, investment, insurance, tax and legal. They do not sell products unless that is their only form; for example, an insurance product.
Your expectation: The advisor helps you accumulate and preserve assets for your future use.
What Do You Win?
We cannot guarantee results, but it could be a lifetime of financial security. You retire when you want to. You have a comfortable lifestyle during your retirement years. You have financial security late in life when you need it the most.
Small improvements in results can have a big impact on your ability to accumulate assets for retirement. For example, Vanguard, the largest no-load mutual fund family in America, conducted a study in which it found that a high-quality financial advisor can improve your investment results by as much as 3 percent annually. When you compound a 3 percent improvement over a long time period, the results may astound you. It can be worth in excess of $1 million if the compounding period is long enough. Imagine how an additional $1 million producing $40,000 per year of income could impact your standard of living during your retirement years.
Rising longevity increases your need for additional retirement assets.
The 3 percent difference gets down to the quality of the financial advisor that you select. This is why choosing the right advisor is the most important financial decision you will ever make. It is not as dramatic as winning the lottery, but it can definitely impact how you live in the future.
Jack Waymire worked in the financial services industry for 28 years before he left to found the Paladin Registry (www.PaladinRegistry.com) in 2004. This investor education website was based on the Principles in Jack’s first book: “Who’s Watching Your Money? The 17 Paladin Principles for Selecting a Financial Advisor.”
The Registry also has a free service that matches investors to advisors who meet Paladin’s minimum requirements for competence and trustworthiness.
Other posts from Jack Waymire
The world’s first financial advisor directory was the Yellow Pages®. All you had to do was thumb through...
Your first step is to determine the criteria you will use to identify and select the best financial...
A Benchmark is a performance goal. Your advisor is paid to produce results that beat the performance of...