How to Check Out and Secure a Qualified Financial Advisor

How to Check Out and Secure a Qualified Financial Advisor

You know you need help with your finances, but you have reservations about working with just anyone because you watched your sister and brother-in-law lose thousands of dollars forever with that financial advisor now under investigation. This was the same guy who made you feel like you were long-time friends, had the nice office in a good location, and was always so well dressed. He certainly fooled a lot of people for a while.

Now you are not sure what you can do to protect your financial future from some unqualified impostor or just another product pushing salesperson. What should you do to check out someone's background? If you don't know, you are putting a lot at risk.

Asking a few simple questions can help you easily find out a lot about your potential advisor. You may work with this person for years or even decades, so a little due diligence before you begin working together is time well spent.

Some initial questions to ask your potential advisor include:
  1. What is your full name? Have you used any other names in the past? If yes, what are they? (Maiden names may come up and you will need this for your online searches.)
  2. What is your home state for insurance licensing? What is your home state insurance licensing number? Are you licensed in any other states?
  3. Are you registered with the NASD? What is your CRD number?
  4. Do you have a website? What is it?
  5. How long have you lived at your current residence? Someone who has moved around a lot may need scrutiny to find out why they moved so often. Check prior residence cities or states for negative information.

If a person cannot readily and quickly provide these pieces of information, cross their name off your list and quickly move on. They failed the first test - willingness to disclose professional information.

The next step is to log onto the following websites and read any disclosures in the prospective advisor's profile. You are looking for past improprieties, legal charges, suspensions or other negative issues in their file. No disclosures are a very good thing. If you see a pattern, existing problems or other negative items you are not comfortable with, cross the name off your list and move on.
  • National Association of Securities Dealers (NASD.org
  • Securities and Exchange Commission (SEC.gov
  • North American Securities Administrators Association (NASAA.org)
  • National Association of Insurance Commissioners (NAIC.org)

You should also browse the advisor's website. Any good provider can build a professional and comforting website. Any words like "guarantee" in regards to investment performance, or unrealistic investment claims should immediately raise a red flag. You may also gain more information about the person and their abilities from items listed here.

Google the advisor's full name with their city and state and see what comes up. You may be surprised what you will find, which may include birth records, letters to the editor, legal judgments, divorces, articles, web site links and quotes. This can be a great way to quietly look someone over. You are looking for information that tells you about the quality or professional aspects of the person you are considering hiring. For example, if you find a long list of charges for bad checks, this may not be the caliber of person you prefer to handle your assets. Lack of a record does not necessarily mean the person is not high quality. It may mean they are not yet technology savvy, or they may not be very involved in activities outside of their office and a little more due diligence may be in order.

This process will likely take you less than 30 minutes if you visit all the sources above, a small time investment for results.

If the advisor has passed these preliminary screenings, it is time to do a short interview either on the phone or in person.

What to Ask a Potential Advisor
  1. What percentage of assets can I withdraw from my assets in retirement and not likely outlive my money? If the answer given in general is any amount over 4-5% on the high end, move on. Any amount over this has been proven time and time again to deplete a portfolio in the early years too quickly and you will run out of money in later years as a result of this poor initial liquidation strategy. Retirees now will need to plan for a 30 year retirement, something they have never had to fathom before.
  2. Will the distribution of my life insurance and investments be handled by my will? This is a trick question. Your life insurance and qualified retirement type accounts (IRA, 401(k), annuities, deferred comp, etc.) already have beneficiaries listed, so they will not go through the will for estate settlement, unless the estate is the beneficiary. If you have accounts titled POD (pay on death) or TOD (transfer on death) those too already have distribution pre-determined outside of your will. All other non-qualified investment accounts, CD's, savings accounts, checking accounts, and etc. distribution will depend on the titling in place at death and may be the only ones that are distributed according to will instructions.
  3. Does the ownership of my life insurance affect my estate plans? This is another trick question. Group life insurance and personal life insurance owned by the decedent is counted towards their estate tax calculations. If you own large life insurance policies in either or both places, while the beneficiary may receive the funds income tax free, the estate may owe estate taxes on all or part of the proceeds paid. A good Advisor will help you determine the best ownership and distribution structure for you based on your unique situation.
  4. How long have you been licensed and in practice? You may not desire to entrust your financial future to someone who recently opened their doors.
  5. Are you a Captive or Independent Agent or Broker? A ?Captive? person is generally an employee of a particular company or firm. They are usually limited to a specific set of product offerings to choose from for all clients and may have minimum production they must maintain to stay employed with the firm. An ?Independent? person works on a broker basis and does not have production requirements on any company products they may offer, although they may have personal preferences or prefer not to work with some company's products (if so they will generally tell you why if asked). To maintain an independents active securities licensing, they may have a cumulative annual minimum of total production required. If you have a preference, or need more information on how they operate, now is a good time to ask for clarifications.
  6. Do you have evening or weekend appointments available? If you are not willing or able to meet during weekday business hours, you need an Advisor who can meet with you on your limited after normal business hours availability schedule.
  7. Will we meet at my home, or in your office? Most experienced and in demand professionals you are currently working with such as Doctors, Attorneys and Banking Officers have all the resources in place that are needed in their offices for their clients benefit. They do not routinely make house for every client for many reasons. Exceptions are generally made in advance for those clients unable to travel for some reason. It would not be inappropriate to offer to compensate the Advisor for travel time in these special situations giving them the option to accept or decline reimbursement based on the inconvenience and travel costs they would incur to meet with you elsewhere. Often due to existing client obligations, appointments may need to be scheduled a few weeks in advance. Another point to consider, if the Advisor does come to you, please have the courtesy to instruct on site employees not to interrupt for any reason except fire or massive blood loss, turn all the phones off during your meeting, put any animals outside and remove any other distractions so you both can focus their time on your needs only.
While this will not guarantee that you will find the perfect qualified Advisor for you, it will enable you to remove some of the non-subjective reasons for picking an Advisor that will not potentially protect you from a poor planning result. Non-subjective selections biases could include reasons such as they are ?nicely dressed?, 'the office was on my way home from work?, ?The brochure has a picture of a couple that looks about our age?, 'they bought me dinner a showed us a presentation that sounded good? or ?I saw their ads in a couple of places and I recognized their brand name?.

I repeat, after all it is only money...YOURS! Spend a little time protecting it from being lost due to ?poor advice? received and then implemented to your detriment with unqualified assistance!