How to choose a good financial advisor: a lawyer’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 ‚Äč‚Äčestate planning, I can offer some criteria that I look for in light of my experience working with financial professionals.

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

(1) Qualified Reference: Did the candidate approach you or did you contact the candidate based on a qualified reference? By “qualified referral,” in other words, is the candidate someone you were referred to based on your proven success with your clients, or is someone you are referred to because a person you trust is making a referral? Keep in mind that advisors are in a business that relies heavily on referrals. Advisors are also in “sales”. Therefore, they frequently solicit referrals from new clients who have yet to “qualify” the referral based on empirical evidence of their adviser’s actual performance, even though the client may have received good advice or service and therefore you want to promote your adviser.

(2) Objective ratings: There are sources like AM Best and (formerly known as Weiss) that rate financial companies on an A, B, C, (+/-) system. These are useful to know if the consultant works for a well-qualified company or firm. However, at least with AM Best, financial and insurance companies pay to have their ratings published, which then calls objectivity into question. Therefore, trust more than one rating source. There are also the 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) announcing any irregularities committed by companies financial, among others. Searching through the above will at least reveal any “red flags”.

(3) Compensation-oriented advice: Unfortunately, those in finance positions may like it when other sales-related industries come under scrutiny. When it comes to making financial recommendations, the advisors’ own compliance dictates acceptability, to some degree, 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 in making product recommendations that can bypass eligibility restrictions while trying to stay one step ahead of the SEC. As such, know how much your advisor is making on the deal, as well as exactly what your company’s share of the compensation is. The lesson of the past is that advisors are notorious for making recommendations based on compensation.

(4) Don’t be fooled by guarantees of any kind: If your advisor guarantees you 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 holding your money or assets, even if they are FDIC insured, there are no 100% guarantees, although there are some financial instruments that are safer than others (FDIC insurance is relatively safe). In fact, promises of guarantees on financial products or plans that are not financial products can get an adviser in trouble with their regulatory agency.

(5) Good Reputation: It is not offensive to simply inquire about the good standing of an adviser with his or her license and/or any disciplinary action that has been taken. You can even request that he or she provide documentation showing a “clean record.” Why not? Employers obtain background checks on employees. Right?

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

(7) Availability and specialty: If your consultant 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 advisors tend to get back in touch with their clients within 24 hours of contact, usually within the same day. On the other hand, he is your specialist advisor on anything important to your needs. It’s one thing to have an advisor who “serves your needs,” but is he knowledgeable about the desired products and the areas that are important to your financial results, such as variable annuities, variable life, long-term care, ETFs? , etc., or university planning, distribution planning, aggressive growth investment, raw materials, etc.

In addition to these seven tips, make sure your advisor takes responsibility for bad recommendations and is modest with good ones. These indicate someone who is likely to be more responsible and less of a defensive or ego-driven type. Otherwise, it’s nice to know that someone will pull out all the stops when things go wrong.

Ultimately, there will be good and bad advisers; the adviser who is good for you is equally important to choose someone who is “good”. A professional who recommends the best products to achieve your goals and protect your money is essential. Therefore, doing some of your own due diligence on financial products is a good idea despite seeking out 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 advisers themselves. People in the financial industry may have a tendency to protect their own or be too quick to criticize others. After the recent aftermath of this recession, caution and deliberation with your current advisor or finding a new one is well warranted.

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