6 Guidelines for Choosing a Financial Advisor

By: Michael J. Searcy

Working with a financial advisor requires a great amount of “trust” on your part, but that trust should not be developed based on feelings and verbal promises. Real trust can be built when you follow these 6 guidelines for choosing a financial advisor.

Know their structure.
There is a difference between a stockbroker and a financial advisor. Stockbrokers are in the business of giving advice on investment vehicles, while financial advisors can help with both investment advisement and developing a financial plan to reach your goals. However, some financial advisors may be limited in ways they can help you based on their professional affiliations.

Look for an independent Registered Investment Advisor (RIA), as these firms are not obligated to promote a specific product or service and have a fiduciary duty to do what is in the best interest of each client. For an RIA that specializes in financial planning, look for one with a Certified Financial Planner (CFP) designation.

Understand their services.
You may find it valuable to work with a firm with clients who are like you. Ask an advisor for their list of services and for examples of how they’ve helped people with situations similar to yours. Also, find out how they handle situations that are outside of their expertise. Good advisors understand the services that fall within, and outside of, their expertise, and have a network of resources available to connect you with experts if collaborative planning is needed.

Require documentation.
Advisors should be willing to furnish documentation regarding their Code of Ethics, and independent advisors will provide their clients with a Form ADV Part 2 & 2B that fully discloses how they do business. Brokerage firms are not required to provide you with any comparable type of disclosure because they are not held to the fiduciary standard. You should also be provided with an Investment Policy Statement, which serves as the “business plan” for directing and communicating the activities of each client’s portfolio.

Understand how they are paid.
Registered Investment Advisors can be compensated in different ways, so understanding how they make their money and where the payments come from is important. An RIA is required to disclose how they are compensated in their Form ADV, so there should be no question or confusion for the client. Payments received may be a combination of a flat fee for financial planning and a percentage of assets for investment management. Advisors may also include specific disclosures which allow them to help clients with insurance, if the need arises, in a fully disclosed manner. Some RIAs give greater flexibility to clients by offering service levels clients can choose from based on their need.

Don’t accept limited investment options.
Firms who develop and sell proprietary products are often incentivized to promote their products above others. By working with a firm who takes an unrestricted approach to investing, you can help avoid the risk of being cornered into specific investments.

Demand support.
Having support from and access to your financial advisor and their team is something you should demand. You want to know someone will be there when you have questions or need to update your goals based on the evolution of your life. Finding an advisor that meets regularly with clients and keeps up on their lives can help in developing a long-lasting rapport. You will also want to find an advisor who is a match for your communication style. Do you prefer video conferences to in-person meetings? Email to phone calls? Make sure your advisor is comfortable with your style and can communicate in a way that works for you.

As originally published in Mission Hills Arts & Fashion magazine

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on December 12, 2014 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.