By June Kim
At some point, nearly everyone needs the help of a financial professional. But flipping through the Yellow Pages won't do much good when it comes to finding the right specialist. Job titles like investment adviser, financial planner, and financial consultant are used practically interchangeably. And titles you might expect to find -- like stockbroker or insurance agent -- are falling out of use as today's financial advisers try to fill a broader range of needs and attract a wealthier set of clients (see BW Online, 4/6/05, "Death of a Stock Salesman").
Regardless of their goals, what matters is your need. Whether you seek a full-scale financial plan, someone to bounce stock tips off, or down-and-dirty advice on life insurance, it pays to do your homework when picking a pro. Follow these five steps to find the right financial adviser:
1.) Figure out what kind of help you need.
Ask yourself what sort of relationship you're looking for with a financial professional, says financial planner Anthony Domino Jr., president of the Society of Financial Service Professionals. Need someone to help you with paying for your children's education, saving for retirement, and deciding whether or not to buy a vacation home? If so, you likely need full-scale financial planning.
You may want to form a long-term, close-knit relationship with a pro, who could, as current Morgan Stanley (MWD ) commercials imply, be there by your side as you confront life's major milestones. Assuming you have the funds to meet increasingly high minimum-account sizes, financial consultants from major brokerages or independent shops will happily take you on.
On the other hand, you might want someone to simply take a snapshot of your family finances and let you know whether you're on track. A handful of meetings with a financial planner can accomplish that goal. You may find someone who charges a fee for his or her time, then sends you off with a to-do list of financial steps to implement on your own.
Or maybe you're after advice in a specific category -- insurance, estate planning, or debt reduction. Then, of course, you'll want to look for professionals in those areas. "If you're interested in bonds, you want someone who has an expertise in selling bonds -- not someone who sells mutual funds," says John Gannon, vice-president of investor education for the National Assocation for Securities Dealers. "Not everyone sells bonds."
2.) Gather a list of potential candidates.
In many ways, this ranks as the hardest step of all. The best way to find a financial adviser is through word of mouth. So, ask all your friends and family members for tips. One glowing recommendation may tempt you to stop there. But don't. Gather the names of at least five other people. Your homework has just begun.
If you can't find enough candidates through word of mouth, go to the Web site of any brokerage firm. It will spit out the names of representatives in your area. Many trade groups, such as the Certified Financial Planner Board of Standards, which administers the popular CFP designation, have Web tools that match individuals with financial professionals.
3.) Check around.
Once you have a list of a half-dozen candidates with the kind of expertise you want, narrow the list to your top three top. These days most financial advisers have Web sites that include information about their backgrounds, education, years of experience, and areas of expertise. Start there.
Take a close look at the person's job history. A red flag: someone who has skipped from firm to firm, says Gannon. This may signify disciplinary or other performance problems.
You'll likely find an alphabet soup of letters after the names. Determine what these professional designations mean. The National Association of Securities Dealers (NASD) Web site can help with that. Popular designations include certified financial planner (the aforementioned CFP), chartered financial analyst (CFA), and certified public accountants (CPA).
A CFP certification, for one, means the planner has passed an exam administered by the CFP board and studied a broad range of financial planning areas, such as insurance, retirement planning, risk management, and taxes, says Jim Barnash, president of the Financial Planner Assn. (FPA). The board also requires that they maintain continuing-education requirements and credits in ethics courses.
Just about anyone can hang up a shingle outside an office and call himself or herself a financial adviser, so it pays to do your due diligence before you get too cozy with a candidate. Check with professional organizations the candidate is affiliated with to make sure he or she is in good standing. The NASD has a BrokerCheck service that enables you to find disciplinary information regarding arbitration cases, customer complaints, or regulatory action. The CFP Board also provides such a service.
4.) Meet with the candidate, and ask lots of questions.
Once you've streamlined the list, sit down with each person to determine which one you most deeply connect with on a personal level. Finding a financial adviser who you like personally and enjoy working with is often the easiest part of picking a pro.
The most successful financial advisers have expertise in selling themselves as well as their services -- and have outgoing, friendly personalities to boot. But that doesn't always mean they have the time and attention to devote to your most complex concerns. Beware of getting stuck with a cookie-cutter approach when you're paying for personal attention.
The most important matter to bring up during your introductory meeting: fees. These days, fewer traditional brokers make a living off commissions on securities sold (although that might be the best deal for customers in some cases). More investment advisers are building fee-based businesses for which they charge clients 1% of assets annually to manage their finances. Most are open to a mix of commission and fee-based payment scenarios. Financial planners will often charge clients purely for advice on an hourly basis -- an option that's gaining in popularity, says the FPA's Barnash.
There's no right or wrong way for a pro to get paid. Just make sure you understand the method of compensation and that your adviser appears comfortable and forthcoming when discussing the pros and cons of the arrangement.
5.) Keep your eyes open.
Once you've found a planner or adviser you trust to solve your problems, resist the urge to kick back and assume your work is done, says Gannon. Keep track of your money by checking monthly statements and getting confirmations on trades. Ask questions when you see an unexpected charge or puzzling investment choice. "You can't close your eyes once you've made your decision," says Gannon.
That may come as bad news if you were hoping that finding an adviser would free you from all worry about personal finances. Remember, no matter how impressive your adviser, it's still your money and you need to keep an eye on it.
Kim is a reporter for BusinessWeek Online in New York
Edited by Amey Stone