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If recent events in the financial world have made you decide to “get serious” about planning your financial future, one of your next steps may be to seek professional help. Perhaps relatives or friends are recommending financial professionals to you. Maybe you know a financial professional as a neighbor, fellow parent, church member or otherwise. What is a smart way to choose planning advice and service? What questions should you ask in evaluating prospective financial professionals? Consider the following nine common-sense ideas.
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Focus on the person. You probably want a relationship with a financial professional that will continue for years and help you achieve long-term goals. This relationship usually is built on a personal level, not with companies. That”™s why it”™s best to set aside the hype and focus instead on the integrity, style, values and work habits of the person. It”™s a good idea to obtain referrals from people you know and trust, ideally those who are clients of the same professional.
Go slow. Some of the best financial relationships are built gradually, so don”™t feel pressured to make a commitment fast. If you”™re buying a financial product, evaluate how well the professional serves you after the first sale. Continuing service is a true test of a professional.
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Listen. In your first or second interview, most financial professionals will tell you how they work and what they do best. Sit back, make eye contact and listen carefully. Try to identify the fundamental values or experiences that shape the person”™s methods and views. For example, some professionals are comfortable recommending high-risk investments and others are more conservative. Try to identify specific strengths and decide whether these match your needs.
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Expect to be educated. Ask professionals how financial concepts work, and then evaluate how much clarity and care they put into the answers. The best financial professionals are good communicators and educators who don”™t mind teaching their clients. When someone brushes off questions with flip answers, it can be a sign he wants to push clients into products that may not be appropriate. Professionals don”™t bully clients with superior financial knowledge. They share it.
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Discuss fees. Financial professionals can be paid in many ways. Some payments are made through commissions while others involve hourly fees or fees based on assets invested. Any method can work, provided you understand and are comfortable with it. Ask how they wish to be paid and approximately how much you should expect to pay in the first year of your relationship.
Ask for documents. Ask to see documents before choosing a financial specialist. If this person acts as an investment adviser representative, collecting fees to render investment advice, obtain and study a legally required document called an ADV II. This will explain his investment methods and fee structure in detail. If he prepares financial plans for a fee, ask to see a sample plan and make sure you are comfortable with its depth and style. Life insurance specialists should be willing to show illustrations of programs they represent that project costs, coverage and benefits over periods of time.
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Evaluate process. At some point early in your relationship, the financial specialist probably will make a specific recommendation to you, which can involve buying an investment or insurance product, participating in a planning analysis or opening a brokerage account. Before accepting or rejecting the recommendation, ask yourself if he learned enough about you and your needs to make an appropriate recommendation at that point. If a recommendation comes too fast, it”™s a sign he is focusing on his needs more than yours.
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Credentials and background. Most reputable financial specialists have college degrees, and many also have earned professional designations such as certified financial planner (CFP), chartered life underwriter (CLU) or chartered financial consultant (ChFC). Once you are comfortable with a financial professional”™s style and methods and have checked out personal recommendations, consider degrees and designations the “icing on the cake.”
Remember his role. Your financial professional isn”™t your parent, buddy or psychiatrist. This person”™s role isn”™t to set strict rules on how you can invest or cheer you up when your investments are dropping. He will prove most valuable by listening to your needs, making clear recommendations, helping you avoid mistakes and always telling you the truth.
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Joe Biegel works with Associated Benefit Consultants and is a financial adviser of Park Avenue Securities in Rye Brook, N.Y. Reach him at JBiegel@AssociatedBenefit.com.
