Selecting a Financial Advisor

AMES, Iowa -- If you are like many individuals, you may not have the time, knowledge, or motivation to plan and implement financial strategies on your own. “If so, then selecting a financial advisor to help you may turn out to be one of your best investment strategies,” says Pat Swanson, CFP® and families specialist with Iowa State University (ISU) Extension’s Invest Wisely Project (www.extension.iastate.edu/investwisely).

Swanson says it’s important to have well-defined objectives before you select an advisor. “Decide what type of advisor you want. A stockbroker recommends to clients which securities to buy and sell and earns a commission on all trades. A financial planner considers your total financial situation to develop a comprehensive financial plan.”
Ask friends and family members who they recommend. Satisfied clients will be able to tell you why they like a recommended individual. You also can check with professional organizations such as the Financial Planning Association (www.fpanet.org) to get a list of planners in your area. The National Association of Personal Financial Advisors (www.napfa.org) is an organization of fee-only comprehensive financial planners and they too will provide the names of their members in your area.

An advisor’s credentials are one clue to his or her professional preparation, Swanson says. The Certified Financial Planner (CFP®) designation is awarded by the CFP Board (www.cfp.net) to individuals who have met its education, examination, and experience requirements. Other planning designations are ChFC (Chartered Financial Consultant) and the CPA/PFS (Certified Public Accountant, Personal Financial Specialist). A registered representative or stockbroker must pass exams of the Financial Industry Regulatory Authority (FINRA).

“It’s a good idea to interview two or three potential advisors,” Swanson says. “Go to your meeting with a list of prepared questions.”

For example, find out about the advisor’s fee structure. Some advisors charge a commission on the products they sell such as stocks, bonds, and mutual funds. Some advisors work on a fee-only basis, which means they charge you by the hour or by the specific task. Other advisors charge a combination of fees and commissions.
Ask potential advisors what services they offer as well as their approach to financial planning. What type client do they like to work with? Do they like to look at a client’s financial situation in its totality or do they prefer to focus strictly on investments? What process will they use to help you with your investments? What is their investment philosophy?

“You will want to select someone you feel comfortable sharing information with,” Swanson says. “The more an advisor knows about you and your financial situation, the better he or she can advise you. You will also want someone who explains things clearly regardless of how much time this takes.”

Swanson suggests you check the background of the firm or individual with the Iowa Insurance Division at 877-955-1212. You will want to know if they have been disciplined for any unlawful or unethical actions.

“Once you have selected an advisor, ask the individual to provide you with a written agreement that spells out the services that will be provided and the fees that will be charged,” Swanson says.

“Also, when working with an advisor, remember he or she can’t predict the future or guarantee the performance of investments. It is important to realize you, as a client, have responsibilities. You have to be willing to share financial information about yourself, define your goals, and ask for clarification when you don’t understand something,” Swanson concludes.

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The ISU Extension Invest Wisely Project provides a series of newspaper, radio, and web resources for investors.  It is funded by a grant from the Investor Protection Trust (IPT).  The IPT is a nonprofit organization devoted to investor education.  Since 1993 the IPT has worked with the States to provide the independent, objective investor education needed by all Americans to make informed investment decisions.  www.investorprotection.org.