4 Tips For Finding The Right Financial Adviser


By Walter Updegrave, RealDealRetirement @RealDealRetire

For years the Securities and Exchange Commission and Department of Labor have been yakking about coming up with ways to better protect investors from adviser conflicts of conflicts. And who knows, maybe they’ll get around to doing so in our lifetime. In the meantime, here are four tips to help you find a pro who’s competent, honest and willing to work for a reasonable fee.

1. Start with questions to yourself.  The adviser that’s the right fit for you can depend a lot on what kind of assistance you need. So before you begin your search for financial help, take a little time to ask yourself exactly what it is you want an adviser to do for you.

For example, are looking someone who can do a comprehensive evaluation of your finances, assisting you with everything from developing a retirement plan to assuring you’re saving enough and making sure you have sufficient life and disability insurance? Than in that case you probably want to deal with a certified financial planner, a pro who can take a comprehensive look at all of your financial needs.

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If, on the other hand, you’re primarily looking for investing advice, say, someone who can create a portfolio of mutual funds or ETFs and manage it for you, then the portfolio advisory services that large investment firms like Vanguard, Fidelity, Schwab and T. Rowe Price may be a better fit. Or, for that matter, if you’re looking to keep costs way down and you’re okay getting your investing advice mostly online, you might want to consider a robo-adviser, one of the new breed of investment management services that use algorithms to create and monitor portfolios.

The point is that just as you would think of how you’re going to use a car before you go shopping for one, so too should you know what sort of financial help you need before you start looking for it.

2. Do some due diligence. Don’t be awed just because some adviser hands you a business card that has a long string of professional credentials. Fact is, so many organizations have issued so many titles and designations over the years—The Financial Industry Regulatory Authority alone lists 157 on its site—that it’s become a virtual mission impossible to separate the bona fide ones (such as the CFP and ChFC) from ones that are mere marketing gimmicks, or worse.

So do a little digging. A good way to begin is by going to the Check Out A Broker or Adviser section of the Securities and Exchange Commission site. There, you’ll find detailed information on how to research the background of brokers, planners and investment advisers, as well as links to regulators’ sites and other resources. But don’t stop there. Before signing on with an adviser, ask him to be more specific about the products and services he’ll offer. Can he mix and match investments from many funds or is he restricted to a limited menu? Even if he can choose from a large roster, does he primarily sell one type of investment? The more you can find out about how an adviser makes his living, the better you’ll be able to evaluate whether that adviser is right for you.

3. Get details on fees and charges—in writing.  Advisers are usually compensated in one of three ways: they charge a fee for the advice they give (typically a percentage of assets under management that’s paid each year); they collect commissions for the investment products and services they sell; or they get a combination of fees and commissions. A minority of advisers are willing to charge by the hour or work for a flat fee for specific projects, such as deciding whether to convert to a Roth IRA.

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Each arrangement has advantages and disadvantages. But whichever method the adviser uses, he should be willing to estimate in writing the total amount you’ll pay and give a detailed breakdown of that cost (initial and annual fees, upfront commissions and “trails,” or commissions you pay on an annual basis and any underlying costs of the investments themselves, such as investment management or administrative fees).  Any exit fees or surrender charges you’ll pay if you sell an investment should also also be disclosed. After you get this fee disclosure, ask the adviser whether there are comparable investments or services available for a lower cost—as there almost always are—and why he didn’t choose those instead.

4. Ask the adviser how he’ll manage conflicts of interest. There’s been a lot in the press recently about the move to hold all financial advisers to a fiduciary standard—that is, require advisers to put clients’ interests first. That sounds nice. But in the real world there’s always some way that an adviser’s interests may not completely square with yours.

For example, advisers who charge commissions may have an incentive to steer you to products or services that provide them with the fattest payout. Those who eschew commissions in favor of an annual percentage fee based on the value of assets they oversee may be tempted to keep that percentage fixed  as the value of your portfolio climbs even if they’re doing the same amount of work for you. Or they might be reluctant to put you into investments that may not be covered by their arrangement, such as CDs or annuities, and thus reduce the fee you pay.

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So before signing on with an adviser, ask him to explain the potential conflicts and how he plans to manage them. If the adviser balks at this request or says your interests and his are perfectly aligned, move on to another adviser. There are more than enough out there.   (3/30/15)

Walter Updegrave is the editor of RealDealRetirement.comIf you have a question on retirement or investing that you would like Walter to answer online, send it to him at walter@realdealretirement.com.

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