When looking for that right advisor, remember this phrase: I COME FIRST! This is an acronym for the ten most important things to be thinking about.
I = INTERVIEW
Be sure to interview at least two, preferably three advisors, even if your first contact with an advisor has you convinced that he or she is “The One.” By talking to several advisors, you will learn how various advisors work, and will appreciate the differences between them. It is customary for these interviews to be complimentary.
C = CREDENTIALS
Find out what the prospective advisor “brings to the table” in terms of training and experience. There are many advisory designations and certifications. Some are primarily for marketing purposes. Others, such as the Certified Financial PlannerTM certification, carry some real heft in terms of the requirements to earn the credential.
O = ORGANIZATIONS
Ask potential advisors what organization regulates them. For example, brokers are supervised by FINRA (Financial Industry Regulatory Authority) whereas investment advisors are under the eye of the SEC or their state securities commission, depending on their size. Those licensed to sell insurance are regulated by their state insurance commission. Some advisors are dually registered and are supervised by more than one authority. Certified Financial Planner™ professionals are regulated by CFP Board – the non-profit organization responsible for their certification and their ongoing adherence to practice standards and ethical principles. Contact these organizations tocheck on the advisor’s professional standing.
M = MINIMUMS
If you are looking for investment advice, be aware that some advisors take clients based on the size of the client’s investment portfolio. Ask about this up front. If you don't meet an advisor’s minimum, don’t assume there is no one who will take you. Keep looking for those advisors offering advice on a different basis, such as hourly or for a given planning analysis.
E = ENGAGEMENT
Find out not only what services the advisor provides—such as tax prep, retirement planning, investment management—but also how you would work with the advisor. Will you be working with one advisor, or with a team? Will you meet in person or by Skype or phone? Will the advisor contact you if there are significant changes in the economic or tax environment?
F = FIDUCIARY
A financial fiduciary puts a client’s interests ahead of his own when providing advice, and makes full disclosure of any potential or existing conflicts of interest that could influence the basis of his advice. For example, Registered Investment Advisors (RIAs) are legally required to be fiduciaries; CFP® professionals, when providing financial planning, are also required to act as fiduciaries as a condition of their certification. But there are many financial practitioners who are not held to this standard. The simplest, most direct way to find out if your advisor will be acting as a fiduciary in his engagement with you is to ask: “Are you a fiduciary?” Ask for this in writing.
I = INCOME
All financial advisors work for a living, but it is important that you understand how they are compensated. It is important to understand when, how, and by whom yours is paid. Do they receive income based on the sale of an investment? Based on the assets under management? Based on a set fee for his advice or time? There are many ways advisors make their income, so be sure to understand how your advisor works.
R = REFERENCES
When interviewing an advisor, ask if you might speak to some of the advisor’s clients. Be aware, however, that few, if any, advisors will give you the names of unsatisfied clients. Further, maintaining the confidentiality of clients is an important practice, so the advisor may be unwilling to ask his or her clients for permission for you to contact them.
S = SPECIALTY
Financial expertise covers a wide array of topic areas: cash flow and debt management; risk management; tax, education, investment, retirement and estate planning, to name some of the most common. Discuss with a potential advisor which areas he or she may specialize in, and whether referrals are given to outside professionals for advice in areas where the advisor is not expert.
T = TYPES OF CLIENTS
Some advisors focus on particular types of clients: divorced, retirees, professional women, doctors and attorneys. Sometimes the focus is defined by levels of wealth, such as middle income, affluent or mega-affluent. Find an advisor for whom you are the “norm” — right in their sweet spot of practice. You do not want to be the advisor’s biggest, nor smallest client, nor do you want to have a life situation or profession with which the advisor is unfamiliar.
Yes, there is a lot to think about when choosing an advisor, and there are many different styles of practice and business models. Nevertheless, keep the focus on yourself, remembering that you and your financial needs COME FIRST.
Visit LetsMakeaPlan.org to find a CFP® professional who fits your needs and for additional consumer resources on financial planning.
Note: A version of this blog was originally published on USA.gov.