Selecting a Financial Planner, Investment Advisor or Stockbroker

The same care should be taken in selecting a financial advisor as in selecting the services of any other professional. To start the search ask for recommendations from friends who are successful investors, business colleagues, your lawyer, accountant, banker or other professionals whom you trust.  Keep in mind that someone else's ideal financial planner may not be right for you.  Your goal should be to find a financial planner who will be able to understand and accommodate your particular investment status and personality.

To select a financial advisor who will best meet your particular investment objectives, have a clear, precise and realistic idea of your goals.  Review your personal financial situation, including income, debts, insurance and emergency reserves of cash.   Carefully consider how much you can afford to invest and how much risk you are willing to assume.

Below are some characteristics to look for and qualifications you should establish in choosing someone to deal with your investments.

Financial advisors should:

Pay attention and act on what you say. A financial advisor should always listen to what you have to say and respect your chosen degree of risks and objectives.  If you feel as though you are not being treated with courtesy and respect, find someone else.

Explain things until you understand them.   A good financial advisor will provide you with information and take as much time as necessary to explain a proposed transaction.  Remember, it is your investment.   You have every right to understand exactly what is going to happen.

Choose someone with whom you feel comfortable.   The more this person knows about your financial situation and goals, the better your account will be served.  If you feel uncomfortable, you may not give your advisor as much information as is needed to properly service your account.

Be registered with the Mississippi Secretary of State's Business Regulation & Enforecment Division with no history of customer complaints.   While "financial planners" are not required by law to be registered, "stockbrokers" and "investment advisors" are.  The Business Regulation & Enforcement Division keeps a register of Mississippi brokers, broker representatives and has their reported disciplinary history on file.

Here are some generally accepted guidelines to follow when shopping for a financial advisor:

Determine the advisor's educational and professional credentials.  Does the advisor have a general business degree only or specialized training?  How much experience does the person have and does continued training occur to stay up-to-date on investment changes?

How long has the advisor been in the business and in the community?  A good rule of thumb regarding experience is is five or more years of previous experience as a broker, insurance agent, accountant or lawyer.   It is always safer to deal with those individuals you either know or can check through reliable references.

Obtain references from three or more clients the financial advisor has counseled for at least two years.  Secure the names of several long-term clients and ask about their level of satisfaction, investment returns and intentions about staying with the financial advisor.  Avoid financial advisors who pressure you to rely on the word of one or two clients.  Someone promoting a scheme may line you up with one of the handful of early investors who are paid off in order to lure new investors like you.

Determine who will be handling your account.   If your financial advisor will be turning over all or most of the day-to-day work on your financial plan to a junior associate, take the time to check out that individual as well.  Do not rely on the reputation and credentials of one person if another person will do the actual work.

Request examples of plans and monitoring reports the financial advisor has drawn up for other investors.  Make sure that these documents meet all of the financial plan criteria that would be important to your investment decisions.  The advisor should adhere to an investor's goals and amount of risk assumed.

Ask to what trade organizations the financial advisor belongs.  Membership in industry groups providing training and membership services to financial planners may further indicate a planner's dedication to the profession.  Verify if the organization has educational or job experience requirements, or just requires a membership fee.  Look for broker/investment advisors who belong to NASD (National Association of Securities Dealers) and SIPC (Securities Investors Protection Corporation).

Ask the financial advisor exactly how he/she will be compensated.  Advisors are compensated in three ways:

1. By fee only for hourly work or by the project;
2. By fees and commissions, fee for planning and commissions for implementation;
3. By commissions only for product sales.

All three compensation methods have advantages and disadvantages.  Select the method you prefer.  Remember, the advisor has a legal responsibility to disclose the forms of compensation throughout your relationship.