I am often asked by my clients what I recommend for them to invest in with
their savings. My response is that I am not a financial specialist when it
comes to investing their monies. However I do give them advice on how to
find that person who fits their particular needs.
Hiring an advisor who is not a fiduciary.
A fiduciary is an individual who is ethically bound to act in another person’s
best interest. This obligation eliminates conflict of interest concerns and
makes an adviser’s advice more trustworthy. However there are fiduciaries
that also sell products under the suitability standard which could cause a
conflict of interest.
Hiring the first advisor you meet.
This is a decision that requires time and careful consideration. Interview at
least a few advisers before picking the best match for you.
Picking an advisor with an incompatible strategy.
Every adviser has a unique strategy. Some may suggest aggressive investments
while others are more conservative. If you prefer to go all in on stocks, an advisor
That prefers bonds and index funds is not a great match for your style.
Choosing an advisor with the wrong specialty.
Understand an adviser’s strengths and weaknesses before you commit. Some
specialize in retirement planning. Others specialize for business owners or those
with a high net worth. Others specialize in young professionals starting a family.
Ask about credentials.
Financial advisors are required to pass a test. Ask about their licenses, tests, and
credentials. Financial advisors tests include the series 7, series 65 or 66. Some
advisors go a step further and become a CFP Certified Financial Planner.
Making assumptions when they are affiliated with a reputable brand.
An advisor might appear to be qualified and professional because of their
association with a major brand. Working with an advisor from a reputable
Firm can lead to stability and better tools and information. However choose
an advisor because they are the best fit, not because of their brand.
Not understanding how they get paid.
Some advisors are fee only and charge you a flat rate no matter what. Others
charge a percentage of your assets under management. Some advisors are
paid commissions by mutual funds, a serious conflict of interest. If the advisor
earns more by ignoring your best interests, do not hire them.
Let the buyer beware.
CFP Certified Financial Planner fiduciary is usually a fee based advisor who gets paid on an hourly basis.
CHFC Chartered Financial Consultant a fiduciary, BUT they tend to work also under
the suitability standard and sell annuities and insurances which are commission
based and make more money on these products.
RIA Registered Investment Advisor is a fiduciary who also works under the suitability
standard. They also earn commissions based on the products they sell.
Ask questions. How do you get paid? How much will you earn off of my investments?
Is this really what I need? How well do these investments earn? Understand exactly what you are buying. Do not sign any contracts unless you know for a certainty what you are getting into. Do not be afraid to walk away if you are not getting the straight answers you deserve. It’s your money.