During my first year of medical practice I visited a financial advisor in search of guidance for paying off my school debt and investing for the future. During our conversation, it became clear that investing with her company meant I could only chose from a limited group of funds – their funds. I didn’t find that very appealing and decided to learn about investing on my own.
I subscribed to Investors Business Daily, read books, studied the principles of stock selection, and tried my own hand in the market. This happened to be during the tech boom when most anyone who entered the market made money. This gave me a distorted view of being successful in the market.
After the bubble burst, I decided to try again to find a financial advisor. I remember walking into the office of an advisor at one of the big name companies. There were stacks of unkempt papers over a foot high on the desk and surrounding floor. A few revolutions of the ceiling fan and the papers would have been airborne. I ran for the parking lot.
I ended up choosing a firm that was recommended by a wealthy friend. I did some due diligence, but I must admit it was watered down, because of my trust in my friend. “He has money, he’s a smart businessman, he must know a good firm from a bad one, “ I told myself. In retrospect, the choice was decent, but it would have been better for me to take a more active role in the process of vetting the firm and the ultimate decisions they made with my money.
The truth is, no one is going to care as much as you do about your money. Financial Guru Suze Orman instructs on how to find the best person to manage your money, “Look in the mirror!” she exclaims with conviction. She is a big advocate of people becoming educated about money matters and taking control of their financial future. She offers tools and resources on her website.
Realizing that many people do not feel comfortable doing their own investments or don’t think they have the time, she offers tips on choosing a financial advisor. There is also a great article from the Wall Street Journal on this subject. Below I have extracted some of the key recommendations from both of these sources:
1. If an advisor is knocking on your door, or cold calling you, think twice. A successful advisor doesn’t have to look for clients.
2. Visit a potential advisor’s office. Pay attention to how they keep their space. Is the office busy?
3. A good advisor should ask you all of the following questions before asking you how much money you have to invest:How is your health?
Are you in debt?
Are you responsible for aging parents?
Do you have a will or a trust?
Will you inherit some money some day?
Do you need to make any major purchases in the near future?
Do you have a retirement plan?
Do you have adequate insurance?
Are you saving for your children’s education?
4. You should be told upfront (and not have to ask) how and how much the advisor will be paid. Orman recommends a “fee only” payment versus commission, ideally not more than 1% of the invested amount – 2% at most.
5. Do a background check on a potential advisor at Finra.org, the Financial Industry Regulatory Agency’s Web site.
6. Ask for the advisor’s and company’s track record.
7. Do not write a check directly to an advisor. You should only write checks to a brokerage, insurance or other financial services firm.
If you already have an advisor, it can be easy to become passive about your money and just file those statements away. Don’t feel like you are offending your advisor by asking questions about your money. You should know exactly what your returns are, what fees you are paying and why, and what the short and long term investing goals are. You have a right to know.
Remember, it’s your money.