Financial Advisors

It has always been my view that most people would do well to become their own financial advisor, but it does take some effort, more than some people are prepared to give. Others have more complex situations that call for extra help. In any case it is worth developing some understanding of the potential help available.

Financial advisers are often tied to one company or organization. Similar to insurance representatives in this respect, they are limited to offerings by their association. Others are independent and can choose from many available investment opportunities.

Some are multi-tied. They work with more than one financial company. But often these are advisers who work with different types of companies, such as those offering insurance or retirement plans, and they are limited within each area.

Certified Financial Planners have been accredited by the Certified Financial Planner Board of Standards which does have a rather impressive set of requirements and testing. It is a reasonable measure of an advisor’s knowledge base but is no guarantee, nor is the lack of this accreditation mean that an individual advisor is not qualified.

There are many other types of certification and titles employed by workers in field, so many that I will not try to identify them by name. Instead I will suggest some of the areas you want to check out when choosing an advisor.

First and always, determine the vested interest of the advisor. If they work for a bank they are going to promote the banks offerings. If they work for a brokerage firm they will try to sell the offerings making the highest profit for the brokerage company. If they are selling insurance...well you get the picture.

Determine the payment structure for the advisors. If they benefit from your buying and selling stocks they would benefit from "churning" (turning over unnecessarily) your investments at your expense.

Whether they are paid by the hour, they are paid by varying rates based on promotions by different stock or fund offerings or they are paid based on how much they make for you, it will all have an influence on their recommendations. That does not mean you cannot use them. It means you keep your eyes open and be aware of what you are doing.

The most important advice I can give is to get personal recommendations from people in the know. Don’t listen to people who don’t know a lot about money. Relatives and friends may not be your best source. Ask for recommendations from people who have received good advice from their advisor.

An excellent help is provided by the Certified Financial Planner Board of Standards. It is called How to Choose a Financial Planner. This page has a list of ten key questions (with important comments) to ask a potential advisor, a print out of the list of questions with space for answers to guide an interview, a list of sites to go to for checking any disciplinary actions and more.

In the end, though, it is up to you to make the right decisions. That is why I encourage most people to learn what they need to know and make decisions that fall within the scope of their own understanding.