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How to evaluate possible financial advisors

Radio Transcript, 2 minutes 50 seconds, for use during week of April 28.

Description: Penny, Ira, and Susan discuss interviewing financial advisors to find the best fit for their investment goals

Announcer: Invest Wisely comes to you from Iowa State University Extension through a grant from the Investor Protection trust, providing investor education on the web at: investorprotection.org.

Susan: Penny, we talked last time about hiring a financial advisor and both Ira and I have decided that it's something that, for different reasons, makes sense for both of us.  We've each given some thought to our objectives.

Ira: We've also each gotten a list of two or three potential advisors, but we've got some questions for you about how to choose the right one.  Each of the advisors on our lists has been recommended by people we know and trust.  And each of them had good reasons for recommending that advisor.

Penny: That's great!  It sounds like you've got a good start on picking a financial advisor who's right for you.  The next step for each of you should be to interview the two or three potential advisors on your list.

Susan: What questions should we be asking?

Penny: The advisor's credentials will be one clue. There’s a real “alphabet soup” of credentials! For example, there are CFP, or Certified Financial Planner, ChFC, or Chartered Financial Consultant and CPA/PFS, or Certified Public Accountant, Personal Financial Specialist.  Each indicates someone who has met specific education, examination and experience requirements.

Ira: What about fee structure?

Penny: Some advisors charge a commission on the products they sell.  Some work on a fee-only basis, while others will charge a combination of fees and commissions.

Susan: I'm at a stage where I'd like someone to look at my complete financial situation, but I know Ira is more interested in focusing strictly on investments.  Should we be looking at different financial advisors?

Penny: You certainly may be.  Ask your potential advisors what kinds of clients they like to work with and what their investment philosophy is.

Ira: I’d also like to know if they've had any problems in the past.

Penny: You can check the background of a firm or individual with the Iowa Insurance Division at 877-955-1212.  They can tell you if the firm or individual has been disciplined for unlawful or unethical actions.

Susan: Thank you, Penny.  As always you've been very helpful.

Penny: You're welcome.  And remember, for more information, visit the ISU Extension website at extension.iastate.edu and look for 'Invest Wisely.

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Updated April 29, 2008