The remaining four things to look out for…
In your quest for a good financial advisor, we know we want to work with a fiduciary, a separate custodian, and someone who has their CFP® designation. Is that it? Not quite, but we’re getting close.
Criteria 4 – Stick to the 10,000 Hour Rule
Psychologist Anders Ericsson has studied what makes great performers such great performers. His conclusion? Practice. Lots of practice, actually. The 10,000 hours of practice rule has emerged as a rule-of-thumb for how much practice is required to develop an expertise in a field of study. It often requires at least 10 years in one’s profession to begin to have mastery. Again, this is a generality. If you were going in for open heart surgery, would you want a doctor to have 100 hours, 1,000 hours, or 10,000 hours? If I’m hiring a doctor or any specialist, I will only hire someone with at least 10 years of experience, and when you are hiring a financial advisor, attorney, or CPA, I strongly recommend you do the same.
Criteria 5 – Avoid Commission-Only Advisors
There are many different ways to pay for financial advice. You can pay by the hour, based on a percentage of assets the advisor manages for you (referred to as “AUM,” or assets under management), a flat monthly retainer, commissions, or any combination of the above.
Commission-only advisors – usually stockbrokers and insurance salespeople today – should be avoided. Their entire financial livelihood is based on selling you something. You want your advisory team to be objective and to be your partner, not your adversary.
Stick with a fee-based advisor who charges an AUM fee and may receive incidental commissions on insurance products or a fee-only advisor who receives no commissions.
Criteria 6 – Check for a Clean Record
This one is so simple, but so few people do it. Most people do more research into choosing a restaurant than they will in choosing their financial advisor. But not you! You’ll take the extra few minutes to check out any advisor you are thinking about trusting with your money, right?
Do a background check on your advisor to ensure there are no regulatory or legal infractions against him. Think of it as doing a Yelp check on your advisor. Go to https://brokercheck.finra.org for links you can use to check on the status of their license and regulatory his- tory.
Also, don’t rely on the bio your advisor provides you or the one on his website. If he claims to be a CFP® practitioner, verify it. If he claims he went to Yale, verify it. It takes just a moment, but it can save you dearly. Retired NFL star Ricky Williams learned this the hard way. He is suing his financial advisor for absconding with $6 million from his account and lying about being an attorney and a graduate of Harvard Business School. Don’t blindly trust; verify instead.
Criteria 7 – Check Their Form ADV
Every Registered Investment Advisory firm must complete a document that discloses details about the firm, their clients, their experience, and other valuable information. This is a treasure trove of information as you evaluate advisors. Things to look for are an experienced team (at least 10 years of experience), good education and credentials, no negative legal issues, and a large pool of investor assets they manage. You can request a copy of the firm’s Form ADV from the company itself or by going to adviserinfo.sec.gov.
But what happens after you find and start working with an advisor?
How can you ensure that you make the most of that relationship? You’re going to learn to think of the relationship in a whole new way.
The proceeding blog post is an excerpt from Get Money Smart: Simple Lessons to Kickstart Your Financial Confidence & Grow Your Wealth, available now on Amazon.
About the Independent Financial Advisor
Robert Pagliarini, PhD, CFP®, EA has helped clients across the United States manage, grow, and preserve their wealth for the past 25 years. His goal is to provide comprehensive financial, investment, and tax advice in a way that was honest and ethical. In addition, he is a CFP® Board Ambassador, one of only 50 in the country, and a real fiduciary. In his spare time, he writes personal finance books, finance articles for Forbes and develops email and video financial courses to help educate others. With decades of experience as a financial advisor, the media often calls on him for his expertise. Contact Robert today to learn more about his financial planning services.