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Picking a financial adviser

Dr. Don TaylorDear Dr. Don,
What is the best way to choose a financial adviser? I am in my mid-20s and have a steady income. Currently, I have a large savings account that I don't know what to do with.
-- Clay Cache

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Dear Clay,
It's great that you're at this point in your 20s. Sound professional advice now will make achieving your life goals easier. Start out by deciding how much help you need. Do you just want investment advice or is that just one part in building a comprehensive financial plan?

The key in choosing a financial adviser is in finding one who will work to identify your goals and needs and recommend a range of financial products to meet those goals and needs. A stock broker, for example, may not focus enough on your insurance needs, while an insurance agent may focus too much on that need.

It's important to understand how your adviser is paid. Whether it is commissions, fees or a percentage of assets under management, the adviser is paid for his advice. Understanding how he is paid and how much he is paid is a part of establishing this relationship.

Questions to ask
The following 10 questions can help you determine whether an adviser is right for you.

1. What experience do you have?
2. What are your qualifications?
3. What services do you offer?
4. What is your approach to financial planning?
5. Will you be the only person working with me?
6. How will I pay for your services?
7. How much do you typically charge?
8. Could anyone besides me benefit from your recommendations?
9. Have you ever been publicly disciplined for any unlawful or unethical actions in your professional career?
10. Can I have it in writing?

The Certified Financial Planner Board of Standards Inc. provides an even more complete list of questions you can ask when interviewing financial advisers.

There's an alphabet soup of financial adviser designations and trying to decide what designation your adviser should have is easier when you know the differences. The following list, while not exhaustive, gives you an idea of what's out there:

  • Certified Financial Planner (CFP): The CFP, CERTIFIED FINANCIAL PLANNER, is a financial planning credential awarded by Certified Financial Planner Board of Standards Inc. (CFP Board) to individuals who meet the CFP Board's education, examination, experience and ethics requirements.
  • Chartered Financial Consultant (ChFC): A designation awarded by the American College in Bryn Mawr, Pa. The designation requires eight courses in personal finance related topics. Students also must meet specified experience requirements, maintain ethical standards and agree to comply with both The American College's Code of Ethics and applicable continuing education requirements.
  • Chartered Financial Analyst (CFA): A designation awarded by the CFA Institute to experienced financial analysts who successfully pass three annual examinations covering economics, financial accounting, portfolio management, securities analysis and ethics, have approved work experience and meet other requirements. CFA charter holders are annually required to affirm their commitment to high ethical standards.
  • Certified Public Accountant-Personal Financial Specialist (CPA-PFS): The PFS designation is awarded by the American Institute of Certified Public Accountants (AICPA) to CPAs that meet mandatory requirements for personal financial planning experience, lifelong learning and examination and adhere to the AICPA's strict Code of Professional Conduct and professional standards.

When interviewing advisers, find out what professional designation(s) they hold and learn what it took to earn that designation. If they're too busy to schedule an interview, they're too busy to handle your money.

My leaning in selecting a financial adviser is to choose one that will work with you on a fee-only basis as they develop a plan. If, in implementing the plan, you choose a commission driven or asset-under-management approach to compensate the adviser, then those initial fees may be reduced or credited to your account. The National Association of Personal Financial Advisors provides a directory of fee-only planners on its Web site. The CFP Board allows you to search for CFP certificants on its Web site while The American College's Web site lets you search its alumni list for financial or insurance advisers.

Editor's Note: Dr. Don Taylor is an associate professor of finance at The American College and a Chartered Financial Analyst.

-- Updated: Sept. 14, 2006

 

 
     

 

 
 

 

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