7 Steps To Evaluate A Financial Adviser | Graham Cleveley Brighton

Choosing the right financial adviser for your unique situation is not an easy task. Recommendations from a friend or business colleague can be a good source, but remember the right adviser for one person may not be a good fit for your needs. Here are seven steps to take in evaluating either a new financial adviser or one with whom you’ve been working for a while. (For more, see: Shopping for a Financial Advisor.)

Understand How Your Adviser is PaidWhile adviser compensation may not be as

important as their competence, it's imperative that you understand all forms of compensation that your adviser would receive as a result of working with you as a client. There are several forms of adviser compensation including various types of sales commissions from the sale of financial products and various types of fees.

Commissions can include commissions paid on the front-end, commissions paid if your sell the product during a period of years known as the surrender period, and ongoing trailing fees. Know that in all cases the costs of these commissions are born by you the investor and they serve to reduce your returns.

Understand Any Conflicts of Interest This is very much related to the adviser’s compensation

method. If your financial adviser is paid via commissions on the investment and insurance product he or she sells to you will this influence the choice of financial products they suggest to implement their financial recommendations?

Along these same lines, if your adviser is an employee of a financial services firm that also offers financial products for sale, he or she may be incentivized (or possibly required) to give preference to the firm’s financial products over others in making recommendations to you. While this has been widely discussed in terms of traditional brokerage firms and wire houses, firms like Fidelity Investments and The Vanguard Group also offer financial advice. This is not meant to say that every recommendation made to a product offered by the adviser’s firm is a bad one, but at the very least you should ask questions here.

Does This Adviser Work With Other Clients Like You?Is your situation typical of the adviser’s client

base? For example if you are a corporate employee looking for help planning for the exercise of your stock options, you should ask the adviser about their knowledge and experience in dealing with clients like you. A financial advisor who deals primarily clients at or nearing retirement might not be a good choice for you if you are a 30 year old professional looking for a financial plan. (For more, see: What Type of Person Needs a Financial Advisor?)

What Services Does the Adviser Offer?While this might seem obvious you should

understand the services your financial adviser does offer and those they might not offer. For example most advisers offer advice on financial planning and investments. Retirement planning advice is also pretty common. However if your advice needs include very specific tax advice or perhaps business succession advice you will want to know if your adviser has expertise in these areas. Likewise, if your adviser is really only focused on the sale of annuities he or she might not be able to offer the full spectrum of financial advice that you need. (For more, see: How to Create a Business Succession Plan.)

How and How Often Does the Adviser Communicate with Clients? It’s important for clients and perspective clients

to understand how their financial adviser communicates with clients and the frequency of those communications. How often will you meet to review your portfolio and your overall situation? Quarterly, semi-annually, annually, as needed? Will these meetings be done in person or perhaps over the phone or via Skype or a similar online service? It's becoming more and more common for clients to work with their financial adviser remotely either by design or based on the client relocating to another area of the country for job transfers or possibly retirement. (For more, see: Why Clients Fire Financial Advisors.)

Is the Adviser a Fiduciary?An adviser who acts in a fiduciary

capacity towards their clients agrees to provide advice and guidance that is solely in the best interests of the client. This is compared to suitability standard that is employed by advisers who work for broker dealers and other firms that sell financial products. The suitability standard means only that the products suggested must be suitable for the client. (For more, see: What You Need to Know about the Fiduciary Standard.)

Check on Professional Certifications and Training Designations such as the CFP and many others are both

a sign of an adviser’s commitment to their profession and most also require a significant amount of continuing education. As you might suspect there are numerous designations available to financial advisers and some are more meaningful than others. For example the CPA designation is the gold standard in the accounting profession but doesn’t in and of itself qualify an adviser to provide advice in areas such as investments and financial planning. Please note that that there is an excellent financial planning designation offered within the CPA community, the PFS designation. (For more, see: Why Financial Advisors Need to Earn Their CFP Mark.)Read more: http://www.investopedia.com/articles/investing/101314/7-steps-evaluate-financial-adviser.asp#ixzz3YfUophG6