Gone are the days of brokers that would call randomly with a stock tip or buy request like movies we have seen with Charlie Sheen or Leonardo DiCaprio. “Advisory Services” has taken over as a foothold in the industry that is Finance.
What was once a transitionary relationship for the wealthy is now a long-term planning type of relationship for all walks of life. Designations are many and confusing. In fact, the financial services industry has more than 250 of them. Some credentials overlap; some are just plain “pay us and we’ll let you use the letters” type; and some actually mean something. Similarly, the type of advisor you may receive also depends on what laws govern their business and their actions.
So, how can an investor tell which type of advisor is right for them? Here are a few key questions one could ask to determine if the advisor is a good fit.
Are You a Fiduciary?
A fiduciary is one that must put your interest before their own when recommending securities or planning opportunities. The Securities & Exchange Commission has required new forms be distributed to prospects and clients alike detailing what conflicts of interest are present with any interaction. If either cannot be handed to you in writing, walk away.
How Are You Compensated?
Just how a fiduciary must put your interest before theirs, knowing how an advisor is compensated is paramount to understanding about any back-door dealings, side fees, hidden fees, or other forms of soft dollars. If the advisor is compensated any other way besides what they charge you directly, think twice about any recommendation they give.
What Is Your Investment Philosophy?
This one is a bit more difficult to grasp, but an advisor that has different philosophies for different clients and different from their own doesn’t have a clear understanding of what they do and may only receive knowledge from a strategy desk far, far away.
What Is Your Succession Plan?
When an investor places the outcome of their life-long savings in the hands of an advisor, they want to know that the advisor will be around for a while. And, if not, are they comfortable with a team they’ve set up to perpetuate them? Most estate plans are multi-generational. Having an advisory relationship that can follow the plan will be worth while.
What Are Your Qualifications?
As I stated earlier with the credential frenzy, look for advisors that are fiduciaries and carry credentials to back it up such as the CERTIFIED FINANCIAL PLANNER™ designation, advisors that are Certified Public Accountants (CPAs) but also carry the Personal Financial Specialist (PFS) designation to signify extra study on financial planning to complement their fiduciary position as a CPA, and finally the Certified Financial Analyst® designation proves a highly difficult and rigorous multi-year examination for expertise in the investment professional world. An advisor having one or many of these specific designations will mean that the investor is speaking with someone that has credibility, knowledge, and experience to help make a great financial plan.
Derek M Oxford | CFP®️, AEP®️