Hiring the wrong financial advisor is one of the biggest mistakes investors can make. So how do you find a good one? By following my 5 rules for hiring a financial advisor I am confident you will be able to find a financial professional who can help you make smart decisions about your money.
Rule 1: Get a referral.
This is such a cliché, but it’s a cliché because it’s true. It doesn’t make sense to start your search for a financial advisor from scratch. Most likely, you already know someone who has a great financial advisor. You just need to ask.
But whom do you ask and what do you ask them? A logical place to start is with your accountant or attorney.
Both should be able to offer you more than one referral. (In fact, I suggest asking for three referrals).
Another great way to get a referral is to ask the wealthiest person you know, “Who do you use as a financial advisor?” It doesn’t have to be a close friend. Ask someone you respect — your boss, or a friend of a friend. The wealthier they are the better, because the rich tend to have the best advisors.
When getting a referral, here are the key questions to ask:
- Why do you like your advisor?
- How long have you worked together?
- What specifically have they done for you?
- Did they provide you a written financial plan?
- How often do they meet with you?
- Do they call you or do you call them?
- How do you pay them?
- Do they provide you with a performance statement that shows you how you’re doing?
- Have you had any problems?
- How’s their customer service?
Will you be compensated for this referral? (Ask this of accountants and attorneys or any other professional who provides the referral.)
Rule 2: If you can’t get a referral, do your own research.
If you’ve tried and you find that you really can’t get a referral, try a referral service that will provide you with information about financial advisors. Here’s a list to get you started:
The Financial Planning Association
The FPA’s web site allows you to search by ZIP code for a certified financial planner (CFP) in a number of different specialties.
National Association of Personal Financial Advisors
This site allows you to search by ZIP code for financial advisors who operate on a fee-only basis.
Certified Financial Planner Board of Standards, Inc.
The CFP Board also has a search tool — by ZIP code or name — on its site. You can also request a free Financial Planning Resource Kit, which contains a collection of educational brochures on financial planning.
Rule 3: Go to your first meeting prepared.
A true financial professional will insist that you come to your first meeting prepared. Ideally, they’ll provide you with a form in advance to help you get your financial documents organized and ready to bring with you.
When you go to your first meeting, you’ll want to bring bank and brokerage statements (for all your investments), last year’s tax returns, retirement account statements, mortgage statements, and insurance documents.
Finally, you should know some things about yourself and what you want out of the relationship. So before you head into your meeting, check out the 5 QUESTIONS TO ASK YOURSELF.
Rule 4: Treat the first meeting like an interview.
Who you hire to manage your money is one of the most important decisions you’ll make in your life, so take it seriously. You need to ask smart questions and not just hire someone because you “like them.” Check out the 10 QUESTIONS TO ASK YOUR FINANCIAL ADVISOR.
Rule 5: Check out a prospective advisor’s background.
If you only follow one of these rules, follow this one. Never, ever, ever hire a financial advisor without checking out his or her background. I don’t care how nice their office is, what the company name on the door is, who referred you, or how many times they were in the paper or on television or radio. It doesn’t matter. Looks aren’t always what they seem.
The best way to verify that what an advisor says is true is to contact the major organizations that review advisors. Start by using FINRA’s BrokerCheck®
BrokerCheck is a free tool to help investors research the professional backgrounds of current and former FINRA-registered brokerage firms and brokers, as well as investment adviser firms and representatives. It should be the first resource investors turn to when choosing whether to do business or continue to do business with a particular firm or individual.
I’ve shared this advice before in my books, and I can’t tell you how many people have written to me to say that they checked out their current advisor and were stunned at what they found. One reader told me that their advisor had a criminal record that included battery (which he had never disclosed). Needless to say, she fired him.
The bottom line: There are really great financial advisors out there, and they are looking for clients like you. You just need to do some smart work to find them. And if you have an advisor that you’re not happy with, maybe it’s time to do a new search.
I hope this information helps you find an amazing financial advisor. Make sure you have The FinishRich Advisor Questionnaire™ form with you when you are interviewing potential advisors.