Choosing a Financial Advisor - How to Find the Right Advisor for You

Financial advisors are licensed professionals who are trained to help individuals make important financial and investment decisions. Most financial advisors are trained and licensed to offer advise on stocks, bonds, mutual funds, retirement plans, insurance, budgeting, saving for college, etc. They are much more than the "stockbrokers" of old. Some financial advisors may call themselves "stockbrokers" or "financial planners," but generally, anyone who gives financial advice and sells a wide array of financial products can be thought of as a "financial advisor."

Like doctors and lawyers, financial advisors are professionally licensed to operate within a highly-regulated industry. Just as doctors have the Hippocratic Oath, and lawyers have a duty to be their clients' advocates no matter what, financial advisors have a fiduciary duty to their clients. This means that they must legally put your interests ahead of their own. This is important, because while the professional oaths of doctors and lawyers do not generally get in the way of their ability to make money, financial advisors are salespeople as well as advice givers. In fact, too many of them are salesmen first, fiduciaries second - and it's important to make sure that yours has his or her priorities straight.

How Important is Experience?

Most people put a premium on experience. However, in the case of financial advisors, experience may or may not be a good thing. For example, an older financial advisor may be more conservative in his recommendations, which may not be good for you, particularly if you are young. Secondly, the financial services industry is ever changing, and older advisors may not be up on the latest trends. Finally, the profession of financial advisor is one that many people come to later in life - perhaps after being displaced from another career. So just because your financial advisor has a hint of grey in his beard, it does not necessarily mean that he has experience as a financial professional.

Of course, experience is generally a good thing. But don't discount a young and hungry financial advisor - he or she may be more eager to serve you, particularly if you are less than a millionaire. If you are thinking about hiring a more-experienced advisor, ask for references. If you are thinking of hiring a young buck, ask him what his Series 7 exam score was. The Series 7 is a rigorous exam administered by the New York Stock Exchange with a median score of just 73%. A high score from a younger advisor means he was hired because he knows his stuff. A low score probably indicates that was hired because he's a good salesperson. You don't need a good salesman - you need an advisor who can genuinely help you.

Your Financial Advisor Works for You

Remember: Your financial advisor works for you. You need to treat him or her with the same respect you would any other professional, but don't let your advisor condescend to you - you are the boss, and the respect needs to be two-way.

You shouldn't hire a financial advisor until interviewing at least four of them, each from different firms. You can conduct these interviews over the phone and take note of each advisor's demeanor. Do they seem professional and intelligent? Are they eager to meet with you? Or do they act like they don't need your business? Worst of all, do they expect you to meet some level of "qualification" - i.e. a portfolio size of at least $100,000? If so, walk on by, even if you have the money. True professionals are interested in helping people regardless of their asset-bases.

After speaking with four advisors over the phone, select one or two to meet with. Take note of each advisor's company's office: Is it a professional environment? Or does it look like a telemarketer's office? Remember, you want someone who is trained to help you, not someone who is trained to sell you things that you don't need.

One question to ask each prospective advisor is how they get paid. Some financial advisors are paid a commission based on the size of your account or, worse yet, the dollar value of the products they convince you to buy. Others are paid an hourly fee. Generally, hourly-fee advisors are better, but this does not mean you should exclude commission-based advisors - you just need to be aware of how they're being paid.

Finally, before you making your ultimate decision, do a Google search of each prospective advisor's employer. If their firms have been involved in any securities lawsuits, you might want to steer clear. Of course, the bigger the firm, the more likely something is going to go wrong at some point, but if the problem seems endemic, you might want to go with a different firm - no matter how good the advisor seems.

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