Monday, May 12, 2008

Choosing a FInancial Advisor

I'm Jan Dahlin Geiger, CFP®, MBA , author of "Get Your Assets in Gear! Smart Money Strategies." A Certified Financial Planner™ practitioner since 1988, I've been quoted in the Wall Street Journal, MSN Money, USA Today, Reader's Digest, and SmartMoney Magazine. I have been on the board of directors of the Financial Planning Association (Atlanta chapter) and practice as a fee only planner with a Registered Investment Advisor firm. Additionally, I am the financial expert on the cable TV show, "Living Life With Style" on WCTV-24 in Atlanta and the internet radio shows "Wall Street Chic" and "Women's Wealth Network."

To choose a good advisor, you want to look for 3 key things:

1. Are they a good "fit" as someone you enjoy talking with. Do you feel comfortable telling them your financial history?

2. Are they technically competent? Do they act as a fiduciary or as a broker? Do they have the background and experience to do a good job?

3. What is the scope of their service? Will they focus only on investments or will they do more comprehensive financial planning? Do they look at investments, insurance, estate planning, tax planning, retirement planning, cash flow planning, college fund planning and integrate it all or do they just look at one piece on a stand alone basis? (Typically investments.)

For item 1, don't be afraid to trust your instincts. You want someone you feel comfortable with. If someone seems remote or stiff, or else overly familiar and too casual, back off and find someone else.

For item 2, here are some questions I would ask:

1. How long have you been investing your own personal money? (I'd never do business with an advisor who had not been handling their own money at least 10 years.)

2. How much of your own money do you save as a percentage of your income? (You can't teach what you don't know. Any basic text teaches you must save at least 10% to be financially independent one day. If the advisor doesn't do it, beware!)

3. Are you a fiduciary or a broker? If a fiduciary, they are required by law to put the interest of the client first. If someone practices as a RIA, they are a fiduciary. Most advisors with the big brokerage houses are brokers, not fiduciaries and so it is buyer beware.

4. How do you choose and monitor the investments in my account? This question is so critical and I am shocked at how few prospective clients ever ask me this.

5. How long have you been in practice? (95% of all advisors go out of business in the first 5 years. Plus, if they have been practicing less than 5 years, they are learning with your money.)

6. Do you have your CFP designation? If not, why not?

7. Do you have any "yes" answers on your U-4? (This is the document filed with FINRA. A yes answer means they have done something wrong and been disciplined for it.)

8. Request 3 references to clients in a similar demographic, e.g. also a widow, also a business owner, also a young married couple, also retired, etc. You want references to match the demographic of the prospective client.

9. How do you charge me? If they say commission, buyer beware. A better model is a percentage of assets under management (typically in the neighborhood of 1% -- more for small accounts and less for larger accounts.) Another good model is a flat fee or an hourly fee. Typical is $200-$300 an hour - less in rural areas and more in CA and NY.

10. What is your backup? Who do I work with if you are on vacation or out sick?

You would be astonished to know how few clients ask me even basic questions like this. In my 20 years in practice, I have had exactly one person (a librarian who did her homework) ask me about question # 7.

For item 3, consider that many financial planners who offer comprehensive advice charge no more than straight investment managers, but they usually bring so much more to the table. An advisor who is well informed of your tax situation, your family dynamics, your cash flow situation, your retirement ambitions, etc. will often give you advice that is very different than someone who focuses solely on investments.

For example, I have a client who was in Europe and requested $50k from her IRA. If we had been straight investment managers, we would have taken her order, sold the securites, sent her the money and she'd have a tax bill of about 35% of the money. However, we knew all her details and knew she'd use the money to buy a house. We also know where all her money is, both with us and in bank CDs so we could advise her which account to use to get the best tax benefit and create the best cash flow situation based on how she handles her money. Her tax bill ended up being 5% rather than 35%.

If I can provide any additonal information, don't hesitate to contact me.

With best regards,

Jan Dahlin Geiger

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