Deciding how to convert a lifetime of accumulated savings into retirement income usually requires professional assistance. Investment advice, like legal or tax advice, is highly specialized for finding the right professional is critical.
If you’ve accumulated some wealth, the number of people seeking to assist in the management of your wealth can be overwhelming. Everyone from your banker, insurance agent, stockbroker, mutual fund manager, lawyer, and even your CPA, wants to help. So, how do you go about finding the right financial adviser?
What to look for, how to research a financial adviser
The ideal investment adviser possesses three characteristics:
- Ethical practitioner whose interests don’t conflict with yours and whose compensation properly reflects the time and wisdom provided.
- Attentive listener willing to learn the full picture of your personal circumstances.
- Trained/experienced expert on all relevant subject matter.
The most reliable way of finding someone who meets the first characteristic is to ask people you trust, who are working with an adviser with whom they’ve had good experience, for a referral. If you don’t have access to such referral sources, there’s always Google. Try searching for an investment adviser using search terms such as local, experienced, flat fee, and highly rated.
How to do a background check on a financial adviser
Once you’ve acquired a handful of names, you should conduct a background check. The financial services industry is highly regulated with client-facing professionals required to be licensed, supervised, and up to date on best practices. Any complaints reported against them must be disclosed as part of the public record.
For financial advisers, FINRA’s BrokerCheck is a helpful resource for viewing their experience, licenses, and any “disclosures” that consist of complaints or legal actions. If the representative is an insurance agent, the National Association of Insurance Commissioners (NAIC) and Consumer Information Source (CIS) serve as watchdogs where you can find information akin to that provided by FINRA for advisers. Searching for an adviser’s name and firm via Google can also yield some other important and relevant biographical information.
Investigate compensation, potential conflicts of interest
Once you have your list narrowed down, it’s important to investigate and understand how the adviser gets paid. The bottom-line question is simple – can the adviser affect their own compensation based on the investment decisions you make? In other words, do your investment decisions impact how much the adviser, or their employer, earns?
The financial services industry has long obfuscated the relationship between your investment decisions and adviser compensation, but you should be aware of all potential conflicts of interest when selecting an adviser. In my experience, even when properly disclosed and highly regulated, such conflicts function like gravity. They’re an invisible force that inexorably pushes financial advisors to recommend certain products or programs that increase their own compensation. Study after study has demonstrated the negative impact of conflicted investment advice, through unnecessarily expensive investment recommendations, on your returns. Once you know how an adviser is paid, you should be able to distinguish whether they offer conflicted or unconflicted advice. Understand, as a general rule, conflicted investment advice, no matter how clearly disclosed and highly regulated, is inferior to investment advice which is not conflicted.
You may hear advertisements for “fiduciary advisers” who profess they have your best interests at heart. However comforting this may sound, this claim does not mean their advice isn’t still conflicted. Paying for financial planning and investment advice as a percentage of your liquid assets is usually not a good idea. Yes, they make more if you make more, but they also make money if you lose money, and make increasingly more money every year for what is likely the same amount of work as your account grows.
That is why I recommend you look for an investment adviser willing to work on an hourly or retainer fee basis – like you pay your accountant or attorney. “Flat fee” investment advisers are hard to find, primarily because this business model isn’t as lucrative, but they are out there and worth looking for. To locate on in your area, try searching these websites: xyplanningnetwork.com and garrettplanningnetwork.com.
Seeking professional assistance in managing your savings is highly recommended. Start by seeking referrals from trusted sources and conducting thorough background checks to verify credentials. Investment advisors whose business model creates a conflict of interest can potentially lead to suboptimal investment advice. When possible, opt for one who charges flat fees or hourly rates, as their compensation best aligns their interests with yours and does not incent them to recommend high-cost solutions.
Ultimately, a good adviser listens well, provides unbiased advice, and offers value that matches their expertise. Taking the time to find a reliable adviser can meaningfully impact your future financial security.
Michael J. Francis, is President of Francis LLC, a registered investment adviser with offices in Milwaukee, Minneapolis, and St. Louis. Francis can be reached at michael.francis@francisway.com. The information contained herein is provided for informational purposes only. The information provided is from sources we believe to be reliable, but we cannot guarantee its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Francis LLC does not offer personal legal advice.
