As you near retirement, you may decide it’s time to have someone help make sure you are set up for a successful future. We could all use financial advice. But how to find a good financial advisor is the more important question.
Unfortunately, more than 12% of financial advisors who are registered in the U.S. by the Certified Financial Planner Board have a disclosure, or write-up, on their record. There are many types of disclosures and reasons why someone may have one on their record.
- Written customer complaints alleging sales practice violations
- Customer-initiated civil proceedings involving investment activity
- Terminations from certain firms due to violation of firm policy, fraud, etc.
- Financial matters that can include bankruptcies
- Sanctions, which can include a bar, suspension or fine imposed by the Financial Industry Regulatory Authority (FINRA)
Furthermore, as of 2016, of the registered financial advisors in the country, 7% had been disciplined for misconduct or fraud, according to an academic research paper by economists Mark Egan, Gregor Matvos and Amit Seru, on the “Market For Financial Advisor Misconduct.”
Aside from keeping your eyes open to people who may be taking advantage of you, you want to make sure that their financial advice is good: that it is ethical and that it does you no harm.
So, if approximately one out of ten advisors have questionable practices, how to find a good financial advisor?
When choosing a financial advisor, there are certain qualifications to look for. You should also ask several questions in order to gauge if you are getting yourself into a potentially unethical situation.
When looking for a financial planner, the first thing you need to do is to make sure they are a certified by the Certified Financial Planner Board, according to Peter Creedon, certified financial planner and CEO of Crystal Brook Advisors in Mt. Sinai, New York.
“This will automatically set them apart from other financial planners,” he says. “It’s implied that you have fiduciary standards when you have your CFP status.”
Next, check as to whether the person has a website with all of his or her background, job history, and certifications on it, Creedon suggests. Another important factor to look for is whether he or she has had, or is currently pursuing any continuing education classes or certifications.
Before making any kind of decision, Creedon explains that you should set up a meeting with the potential financial planner.
“Even though he or she may be interviewing you to see if you’re a good fit, you are just as much interviewing them,” he says.
Start by asking them to tell you about their business, Creedon suggests. This way you will be able to tell from your gut instinct if this person is honest and willing to educate you about their business. A good person will always be as transparent as possible, he explains.
“You want someone who will have a holistic approach to financial planning because it’s not all about just having someone manage your money,” says Creedon. “You want someone who will want to get to know you and your family and will familiarize themselves with your financial goals.
Overall, when choosing someone to assist you with your finances, you should be able to trust them and know that they are working in your best interest at all times.
“The majority of financial planners I know are all very good people who are in it for helping people, but you always have to be a bit skeptical and on the lookout for people who may not be as trustworthy,” says Creedon.
Sometimes people can get caught up in the stress of certain situations. When meeting a financial planner for the first time, you need to be yourself and make sure you will like working with the advisor. Personal finance is complicated. You want to make sure that the advisor explains things in a way that makes sense to you. You need to be comfortable asking questions and you need to be able to understand the answers.
If the advisor uses concepts or jargon that you don’t understand, and they can not help you understand, then they are simply not a good fit.
“You should always ask them how they do business,” Creedon says. “It’s a broad question, but the way they answer it can tell you if the partnership will work out or not. You should try to see through the act and look to see their integrity.”
Before meeting with a financial advisor, it is best if you have prepared on your own. You should have a good understanding of your current finances and what you want out of the future.
A retirement calculator can be a great starting point. These tools can help you organize and assess where you are right now. And, the best retirement calculators can help you understand the strengths and weaknesses of your own situation– making it easier for you to ask the right questions and evaluate financial advisors.