A critical key to successfully selecting your financial advisor is know what questions to ask. The painful truth is most consumers of financial and investment planning services don't ask some of the most basic questions when finding, interviewing, and choosing the right financial advisor for their specific needs and financial goals. Rather they tend to be wooed by flashy signs on imposing buildings, fancy decor, ultra-slick TV ads and impressive titles. Choosing the wrong financial advisor however can lead to financially disastrous consequences for you and your financial security - and those flashy signs, smooth marketing campaigns, and embellished sounding titles are the least of what you as a consumer should be concerned with.
The problem stems from the Wall Street machine and their monstrous marketing budgets. Wall Street firms label their salespeople "Financial Consultant" or "Vice President of Investments" (I know, I had both titles at points in my career) - remarkable job titles to say the least, and most certainly comforting in nature to the consumer. They piece together emotionally provocative marketing campaigns with catchy slogans and striking logos. They advertise their spectacular investment products and financial planning services on TV, on the radio, and in the most popular trade magazines.
The sordid truth is the Wall Street machine engages in this "financial pornography" to wow and woo you, to impress you, and to give you comfort in the quality of their advice and value of their investment products before you even walk in the door. In reality, the flashy signs and chic titles mean nothing.
Checking your financial advisors background, credentials, philosophy, compensation and experience in the financial services industry can quickly weed out the "less professional" financial advisors - and effectively simplify your decision making process in finding the right financial advisor.
One of the most important "qualifiers" of a professional financial advisor is their level of experience in serving client's financial needs and helping them accomplishing their goals. Notice I didn't say "length of experience in the business". Length of financial services industry experience may mean little if anything, because a financial advisor may have 20 years of experience which may include years of nothing remotely related to serving clients financial needs.
There are plenty of financial industry jobs which may give the impression of real-life "in the trenches" client services experience, but in reality these jobs aren't much more than administrative, managerial, or sales in nature. To choose the right financial advisor, focus on asking the right questions, and expect thorough answers:
# How long have you been working directly with clients as their primary financial advisor?
# How long have you been recommending investment and insurance products?
# How long have you been actively and consistently creating financial plans for clients to help them achieve their financial goals?
# What is your training background, and where did you learn how to diagnose, manage, and solve your clients financial problems?
# How many years did you spend training for your position as a financial advisor?
# What firms have you worked for in the capacity of a financial advisor?
# How many written financial plans have you created for clients?
Those seven questions will garner the majority of information you'll need to make an informed decision on your financial advisor's experience level. But just what should their answers entail? In terms of acceptable financial advisor experience, I would argue the following:
A minimum 3 years of experience. Anything less is a threat to your financial future you can't afford to take. Financial advisor's can intern (or act as a para-planner) with more experienced financial professionals working with clients directly, and should do so for at least three years before taking on the primary role as your financial advisor. Given the volatility and uncertainty of current times, it's easy to make a case for 10 years or more of practical, real-world experience. You wouldn't lay on the operating table for open heart surgery knowing your doctor graduated from medical school yesterday would you?
A college degree. This is a new requirement for NAPFA (the National Association of Personal Financial Advisors, NAPFA.org) registered financial advisors. While a college degree isn't the "be-all end-all", it shows dedication to training and increasing your knowledge early in life - a trait which commonly caries over throughout your career.
A CERTIFIED FINANCIAL PLANNER™ (CFP®) or Chartered Financial Consultant® (ChFC®) designation. Both credentials show substantial dedication to being among the best in the financial services field. Both credentials are difficult to achieve and require ongoing continuing education to maintain. Both credentials illustrate the experience and training so vital to your financial success.
20 written financial plans. Many "financial advisors" don't do written financial plans (but many "financial advisors" are that only in title, and are actually salespeople in practice). Regardless of whether you need a written financial plan or not (not every client needs a written financial plan), your financial advisor should understand how to create one and have reasonable experience in doing so. You may not need that open heart surgery, but don't you want your cardiologist to have the experience requisite to making a wise decision when you have chest pain?
Experience is but one primary component of excellence in financial advice and superior client service. There are many other facets of a financial advisory practice that are important. In the end however, don't you feel more confident you'll be able to reach your financial goals knowing that this isn't your financial advisor's "first rodeo"?
Take the time, ask questions when you interview a financial advisor. Require and expect thorough and reasonable answers. Doing so will help you achieve confidence that you've found an experienced financial advisor able to deliver excellence in financial advice!
Greg Phelps is a CERTIFIED FINANCIAL PLANNER (TM) and Fee-Only Independent Financial Advisor in Las Vegas and Henderson, Nevada. With 14 years of financial industry experience, Greg is an accomplished financial advisor, author, and speaker. Through his employment with two of the largest investment banking firms on Wall Street - Morgan Stanley and Goldman Sachs, as well as serving as the Regional Manager of Wealth Management at the 5th largest accounting firm in the country - RSM McGladrey, he's consistently and ambitiously improved his skill and knowledge in the financial planning field. In addition to creating a Home Mortgage Loan utility for use by financial advisors with their clients, he strives to deliver exceptional financial planning advice and guidance in all areas relevant to his client, with a specialty focus in retirement financial planning.
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