We, investors around the world, have provided the funds American businesses needed to finance their growth over the past two hundred years in exchange for the right to participate in that growth and in the profits that were previously only owned by the owners. . The investor / management relationship has worked so well that an entire industry has evolved to meet the growing number of investor needs for information and advice to help investors make sound investment decisions. The financial services industry, which was originally accessible only to the very wealthy, has grown over the decades to become the provider of investment information to about 40% of American families.
Most financial advisers are affiliated with large investment firms who channel the company’s collective knowledge, information and expertise to their cadre of advisors for delivery to individual and institutional investors. In theory, this gave investors associated with large companies a potential for returns that could not be achieved alone or in conjunction with a smaller or independent advisor.
So the financial advisor who advised you and I was actually taking the “expert knowledge” of the business, tailoring it to our cleanup, and telling us where we should invest our savings to meet our financial goals. We’ve been told that since 1900, if you stayed invested in a well-diversified portfolio, you would never have less than when you started out over a ten-year period.
So what has happened over the past decade? Most of us lost a significant portion of our savings in the 2001 tech bubble to lose more of our savings in the Sub Prime bubble. The amount of $ 100,000 we had in January 2001 increased to $ 60,000 in October 2003, then increased to $ 80,000 in July 2007 and is now worth $ 40,000 today. We’re eight years closer to retirement and we wonder how we’re going to survive if we ever retire.
Do we just intend to work for the rest of our life? Are we working until we can’t get into Medicaid and welfare becomes a drain on the US economy? Are we taking what we have left and developing a strategy and lifestyle that will allow us to live comfortable lives without being a burden on children and our country?
Personally, I think the last option is the best, but it will take an adjustment in our attitudes and our lifestyle. One of the adjustments has to be how we view investment markets and financial advisers. Whether or not you need to change your financial advisor, now is the time to assess the performance of your current advisor and decide if it’s time to make a change. I’m talking about a financial advisor and not an investment advisor, there are less than 5% of the world’s population who should seek the services of an investment advisor. The investment markets are not a place most of us turn to make money; they allow us to preserve the capital that we have left behind and to grow that capital at reasonable rates of return.
The first step in choosing your new financial advisor is deciding what to expect from your advisor after your attitude adjustment. Here are some of my suggestions:
o Help me preserve the capital I have left and grow it at a prudent rate of return.
o Help me live within my means and define an investment strategy based on my needs and goals.
o Help me protect my family against loss of earning capacity or death.
o Help me and my family reach our financial goals before retirement.
o Help me accumulate enough to enjoy a comfortable retirement.
o Help me assess my long-term care insurance needs.
o Help me make an estate plan.
Once you know what to expect from your advisor, you will need to find a qualified provider. As with all professions, the first qualification you should look for is education. Your potential advisors will hold either a Series 66 or Series 7 securities license as well as an insurance license and a variable product license. A Series 66 allows them to sell mutual funds and a Series 7 then allows them to sell stocks, bonds, options as well as mutual funds. A Series 7 is a more in-depth curriculum than Series 66, so I would rule out anyone who does not have a Series 7 title license.
Seventy percent of people representing themselves as financial advisers drop out of school beyond their required licenses and annual continuing education. These are the remaining 30% of advisors you are looking for. These are the people with initials behind their names representing professional designations. At the top of this hierarchical order is the designation CFP (Chartered Financial Advisor). A CFP is comparable to a master’s degree in financial planning; three years of study and at least three years of practical experience are required. To find a CFP in your community, go to: cfp.net/search. Other designations like ChFC (Chartered Financial Consultant) and CLU (Chartered Life Underwriter) focus on specific segments of the financial advisory field. These designations are comparable to board certifications in medical fields, and I personally would not put my finances in the hands of anyone who does not take their profession seriously enough to seek all the education available. This research can leave you with a list of three to three hundred depending on the size of your community. I suggest you check out BestofUS.com, a website that lists the top ten professions in the United States. This should help you narrow your list down to a manageable number of qualified advisors.
Then go to the National Association of Securities Dealers (NASD) website and find your shortlist of qualified advisers. (finra.org/Investors/ToolsCalculators/BrokerCheck/index.htm) Here you will be able to find out the work history of your potential advisors, the history of licenses and whether they have been the subject of legal proceedings or disciplinary. We’ve been through a pretty tough financial time over the past decade and a lot of great advisers have been sued, so use this information to ask tough questions of your potential advisers. “Can you tell me what it is?” Now google your short list and see what you find; you will be surprised at what you learn.
At this point, you should sit down with those who remain on your shortlist. Here is a list of questions you should ask.
o What is your approach to financial planning? If they do not address the “Help me” points above, they are not a financial advisor. If they start talking about managed accounts, sector investing, momentum, technical verse fundamentals, or options strategies, you talk to your investment advisor.
o What was your business book worth on March 1, 2008 and what is your business book worth today? Can I see additional reports? They are going to ask to see your finances, it is right that you ask to see theirs and if it drops more than 25% you are in the wrong place.
o How are you paid? There are only three possible answers here; commissions, remuneration of the asset base or costs. Most will be a combination of the three possibilities; the one you want to watch is the commissions. Committees can create a conflict of interest. Asset-based compensation means that when your assets increase their compensation increases, or your assets decrease, their compensation increases as well. I liked that this resulted in a common goal. The fees will involve special work like a financial plan or a research project related to your specific situation, and that’s right.
o How often will we meet to review my situation? This should be at least twice a year.
o Tell me about yourself. How long have you been with the company? Do you have professional designations? Have you had any legal or disciplinary action taken against you? What is your professional and school experience? Have you written any books or articles that I can read? You know all the answers, sit back and judge.
If you follow this process, you will find the best financial planner for you. You may end up with whoever you used to be, but now you know they are qualified to provide you with the service you need from your new financial advisor.
Choosing your best financial advisor can be as important as choosing your best doctor, so do your homework and take responsibility for your decision. Just like managing your health, you must take an active role in managing your finances; stay involved and understand everything.