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Choosing a
financial advisor if full of risk. You will be entrusting
them with your hard-earned dollars. For many, it is a
decision they quickly regret. In the next 3 articles, I will
share the secrets to choosing an advisor that’s just right
for you. It takes a little work, but can result in a
relationship that will yield dividends for years to come.
In this article, I want to help you clarify what you want in
an advisor and how to begin the search process. In future
articles, I will discuss the difference between passive and
active management philosophies, and how an advisor’s
compensation can affect your relationship--and your wallet!
The process of selecting an advisor should begin by asking
yourself, “What do I want an advisor to do for me?” The
better you define what you are looking for the easier it
will be to tell if an advisor is right for you.
Keep in mind that knowledge is power. The more you know the
less likely someone will be able to take advantage of you.
Do research. This will be a long-term relationship so it’s
worth the effort to get it right. The internet is a
wonderful tool to quickly and easily find out more about a
company, the products they offer, their management style and
even an individual advisor. You can also request additional
information. This research will allow you to greatly narrow
your search.
If you want someone to look at your overall financial
situation and provide advice, I recommend someone with the
Certified Financial Planner™ (CFP®) designation. CFP®s have
undergone extensive coursework and have passed a rigorous
exam based on their ability to apply that knowledge in
real-world situations. A CFP® will have the ability to help
you coordinate the various aspects of your financial life
including estate, investments, insurance, education and tax
planning.
Just because someone is a CFP®, though, doesn’t mean
they’re right for you. You will still want to research their
company, the types of products they sell and how they are
compensated because these can color the advice you receive.
For example, most banks, brokerage firms and insurance
companies now offer financial planning services provided by
CFP®s. Usually these plans are free because the companies
know that you are more likely to buy their commission-based
products if they provide your plan. So beware, they use the
financial plan as a sales tool.
Selecting an advisor to help manage your investment
portfolio also requires thought and research. Before you
talk to any advisors, try to define what you expect from the
advisor during the initial phase when your situation is
reviewed and investments are recommended. What about after
that? Do you expect your advisor to closely watch each of
your investments and to take action when needed? Many don’t.
Decide if you want an advisor who passively manages your
account—who follows a ‘throw it in the drawer and forget
about it’ approach--or one who actively manages it. There is
a big difference, especially if you expect them to take
action to protect your money if the market goes down.
Once your goals are clarified it is time to start the
interview and research process. Ask questions about the
processes and procedures the advisor uses to select
investments and to monitor them after selection. What
assurances do you have that they will take action? Ask them
for specific investment recommendations. How many clients
has the advisor lost in the last few years?
Find out how much they will make off of the transaction and
lastly, get and check their references. Ask each reference
specific questions about the actions taken by the advisor
during recent declines. Find out how often the advisor has
adjusted their portfolio based on changes in the market and
economy.
You will also want to understand the advisors investment
style. What makes what they do unique? If they offer the
same thing as everyone else, why work with them?
These steps won’t guarantee that you’ll find your perfect
advisor, but they’ll give you a good place to start. If you
have any questions feel free to contact me.
Mr. Voudrie is a Certified Financial Planner and the
President of Legacy Planning Group, Inc., a Private Wealth
Management firm in Johnson City, TN. His firm employs
proprietary strategies designed to protect your investment
and grow your wealth without locking you into years of
surrender penalties. For more information call
1-877-827-1463 or email jeff@guardingyourwealth.com.
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