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What to Look for in a Financial Advisor from Morningstar
| What to Look for in a Financial Advisor By Sue Stevens, CFA, CFP, CPA | 05-16-02 | 06:00 AM Finding a good financial planner is like finding a good doctor. You need to be able to trust the person who will guide you with your money or your health. You should be comfortable asking any type of question and confident that this professional has your best interests at heart. Unfortunately, there are both good and bad planners, just as there are good and bad doctors. To maximize your chances of having a happy, healthy relationship with a financial professional, make sure you evaluate him or her thoroughly up-front. Credentials Anyone can hang a shingle in front of their business and call themselves a financial consultant. But you want more! At the very least, I’d suggest finding a Certified Financial Planner (CFP). This credential requires passing a series of exams on related topics and a minimum of three years experience. If you want someone who knows taxes, look for someone who is also a Certified Public Accountant (CPA). The American Institute for Certified Public Accountants (AICPA) has a Personal Financial Specialist (PFS) designation for CPAs/financial planners. Other credentials to look for are Chartered Financial Analyst (CFA) with expertise in the investment field, Chartered Financial Consultants (ChFC) and even a master's degree in financial planning. Each of these credentials comes with a requisite number of continuing education hours each year. The financial planning field is constantly changing, so you’ll want your planner to stay on top of important issues. Experience In financial planning, life experience counts. The issues involved in financial planning are personal and most people feel more comfortable with someone who may be able to empathize with their situation. Gray hair is a good sign in this field! In my opinion, five years of direct financial planning experience is a must. It takes a number of years of experience before you start to recognize patterns and issues that are likely to appear in various life situations. When you interview potential planners, ask them about the types of clients they see most often. Do they have similar issues to yours? Ask to speak to some of these clients. See if they are satisfied and will happily endorse their planner. Planning requires heavy number crunching for various analyses. Ask your potential planner to explain the software they use. Do they seem uncomfortable in describing just what their software does behind the scenes? If so, they may be overly reliant on a black box to produce pretty reports. You’re buying the planner’s expertise, not the aesthetics of the report itself. Good Bedside Manner Good financial planning relationships should last a lifetime or more. In my own practice, clients have asked me to talk to their kids and even their grandkids. The planner can be a neutral party in what could otherwise become heated family "discussions." Read more about the importance of good bedside manner in "Judge, Shrink, Financial Planner?". Final Thoughts Take your time as you go through the process of interviewing planners. Make sure you know how they are compensated through fee only, commission, or a combination. Ask to see Form ADV--a form all Registered Investment Advisers must file with their state or the SEC. You’ll see past history and any problems with legal or compliance issues. You can get recommendations for planners in your local area by visiting these two Web sites: www.fpanet.org and www.napfa.org. FPA (Financial Planning Association) is a national organization for all types of planners. NAPFA (National Association of Personal Financial Advisors) represents fee-only planners. The NAPFA site has an excellent questionnaire you can use to interview planners called "Working with a Financial Advisor." This article originally ran on July 26, 2001. Sue Stevens, CPA, CFP, MBA, and CFA Charterholder, is Director of Financial Planning for Morningstar, Inc and editor of the monthly newsletter Morningstar Practical Finance. Sue reads every e-mail but cannot respond to them all. |
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