What to Ask Your Financial Advisor

Taking a look at your portfolio and your financial goals at least annually is always a great idea. With the economic recovery underway, it is more important than ever to ask your Financial Advisor the right questions before you set forth on a path for the next years to come.

Officially the recession is over, but as we creep toward what looks like a market recovery, investors are presented with new investment opportunities. When you discuss your investment goals and your portfolio with your Financial Advisor, consider asking questions that can help you understand the economic and market environment today and assess the steps you would need to take to move forward.

1. Am I taking on enough risk, the right amount of risk, or too much risk?

The recent economic downturn has made many investors lower their exposure to risk and relatively riskier assets. Certainly, in 2008-2009, their concerns may have been justified, but now, as the economy begins to recover, investors may want to consider whether their conservative positions are really aligned with their expectations of future market trends and moreover their investment goals. In light of improving market conditions it may be sensible to re-evaluate your appetite for risk and your asset allocations to avoid standing on the sidelines as market opportunities arise. In times of market volatility, a major factor that contributes to the creation of market opportunities, it is especially important to review your portfolio with your Financial Advisor at least once per quarter. This will give you peace of mind at night while your sleep, and also help ensure that your investment portfolio and asset allocation continue to match your financial objectives.

2. What can I do get back on track with my retirement savings and goals?

Regardless of where you stand relative to your target retirement goal, whether you are just about ready to retire or are already there, you need to know exactly how your retirement plan has been affected and what you can do to close the gaps in your current retirement plan – especially with respect to being able to cover your projected expenses with your projected income. Make sure to set time now and on a regular basis to have a conversation with your Financial Advisor about where you are and what you need to do to get back on track and achieve your retirement goals.

Planning for retirement includes a combination of systematic savings, investing, and spending. Depending on where you stand relative to your retirement goals, there may be many strategies that you can take advantage of to stay or get back on track. These can include accumulation strategies or even re-adjustment of how to spread your investment dollars across different assets and asset classes throughout the rest of your retirement years. For instance, people planning for retirement say a few years away can increase their rate of contributions to their employer-sponsored plans such as a 401(k), use catch-up contributions to increase funding into their IRA, or re-think their portfolio and asset allocation entirely. For example, they may want to move funds from investments that aren’t expected to recover soon into other asset classes or investments for increased diversification, such as high-quality dividend paying stocks or stocks that show strong growth potential. For those that are closer to retirement or are already retired, the focus should be around spending habits, managing taxes, and trying to strike a balance between meeting short-term income needs with long-term income needs. For instance, certain dividend-paying investments can provide retirees with short-term income streams necessary to cover their short-term expenses while also providing them with capital appreciation potential to make sure their funds last over the long-haul. You and your Financial Advisor can utilize to balance out of these factors and design the rights set of investment strategies for you.

3. Is my portfolio really diversified – or should I consider other sectors and asset classes?

Asset allocation is certainly the hallmark of sensible and prudent investing. Going back to the recent market downturn, diversified portfolio at large had relatively smaller performance drops than those that were help in concentrated positions in only a few asset classes. Make sure to review your asset allocation strategy with your Financial Advisor to make sure you have hedges in place in case of a sudden and violent market event. For instance, some investments did relatively well during the recent recession such as Treasuries and managed futures. So ask yourself if you have exposure to a broad range of asset classes, because it is the one of the greatest hedges against market volatility.

4. How can I shift my portfolio to be prepared for unexpected cash flow needs?

Make sure not to tie up too many of your funds in illiquid investments. If most of your investments in your portfolio are held in hedge funds, private equity, non-traded reits and the like, you may find yourself in a very illiquid and unfavorable position once liquidity becomes a concern – say you need money for an emergency or an expense. At which point, you may be forced to sell out of these illiquid investments at the worst times to meet your short-term liquidity needs. Factor in your liquidity needs in advance so you may be prepared for unanticipated events such as a major expense, a crisis such as a job loss, or a major event such as business opportunity.

5. Is the timing right to begin planning my philanthropic legacy?

Leaving a legacy may sound like an overwhelming task, but it can be quite simple – at least to start with. Explore charitable organizations that you feel most passionate about and discuss your goals with your Financial Advisor. There are many ways to have your portfolio prepare you to leave a lasting mark on the values you feel strongly about such as education or energy conservation. Basic techniques such as utilizing donor-advised funds, charitable remainder trusts, or family foundations can all set you on track to fulfilling your philanthropic goals.

Finding a Financial Advisor

Retirement often presents us with bewildering choices: When to retire? Where to live? How to occupy one’s time? These kinds of decisions are mostly matters of personal choice, and though you can seek the advice of friends and family, ultimately you’ll need to decide them on your own. However, the financial aspects of retirement – how you will derive income from your assets now that you’re no longer drawing a steady paycheck – comprise one broad area where you should consider seeking professional advice, particularly if your financial situation is complex.

Personal financial advisors are more prevalent than ever, and eager to apply their expertise to your situation. An advisor will sit down with you and look at your complete financial picture: any income you have from investments or pensions, your overall assets, your property, any debts or financial obligations you may still have. A good advisor may further help you make decisions regarding insurance and estate planning, and of course will weigh all the tax consequences. In this way, your advisor will help you formulate an overall plan for income in retirement, for adequate insurance, and for passing on your estate as beneficially as possible.

What should you look for in a financial advisor? First of all, credentials. The field is broad and all-encompassing, and people from many professional backgrounds can hang out a shingle advertising financial advice. One of the most respected credentials to look for is “CFP” (Certified Financial Planner). Earning this credential requires working through half a dozen rigorous courses, passing several exams (including ethics training), and having three years of job experience. Other designations included CPA (Certified Public Accountant), CPA/PFS (a CPA with training in financial planning), ChFC (Chartered Financial Consultant, with expertise in insurance matters), and CRPC (Chartered Retirement Planning Counselor). But a CFP will generally have the broadest training.

Another major consideration is fiduciary responsibility. Credentialed financial planners are held to a fiduciary standard, which means that they are professionally required to offer advice that is in their clients’ best interest. On the other hand, a broker, who can also offer a client financial advice on which products to purchase, is not held to a fiduciary standard — a broker is only required to suggest products that are “suitable” for a client’s portfolio. There is a big difference between “best interest” and “suitable,” and brokers typically sell their clients the investment products on which they make the biggest commissions, justifying the purchases by stating that these products are just as “suitable” as any other products.

New legislation currently under consideration (as of May 2011) would apply the same fiduciary standard to brokers that is applied to credentialed financial planners. Until that happens, however, don’t seek financial advice from a broker.

Another consideration is how your planner will be paid. If your situation is fairly straightforward and you just need a few sessions with an advisor to tweak your financial plan, then you will likely pay a standard hourly or per-session fee. If your finances need a major overhaul, you may need an advisor for repeated sessions over a period lasting several weeks or longer. Your advisor will likely charge a flat fee for such an overhaul. Or, you may wish to keep an advisor on board for the long term, having him or her review your situation on an annual basis and make adjustments as necessary. For such long-term arrangements, advisors sometimes charge a fee based on a percentage of your assets. And some advisors indeed earn commissions on some of the products they may recommend to you, such as annuities or load funds. This may not be a bad thing, but be sure that your advisor offers a full range of financial products. There is no reason under the sun, for instance, to purchase a load fund (which involves paying sales commission, typically 4.5 percent of the investment), when no-load funds perform just as well and usually better.

Most important, you must feel comfortable with your advisor. You will be disclosing information about all of your financial, estate, insurance, and related matters, some of which may border on issues that are personal. You should not withhold information, as this will make it impossible for your advisor to fashion a plan that is suited specifically to your situation. Interview at least a few advisors before settling on one with whom you feel compatible, and then you’ll be well on your way to a rewarding and worry-free retirement.

Four Steps in Choosing a Financial Advisor

With all the publicity in the newspapers, television, internet, and magazines, we are all familiar with the likes of Bernie Madoff and R. Allen Stanford. These two “financial advisors” are accused of bilking their clients out of $60 Billion and $10 Billion respectively.

What in the world is going on? Who can you Trust? How do you protect yourself? How do you find a financial advisor that you can trust?

How should you begin to protect yourself?

There are several steps you can take to protect yourself? As with everything in life, nothing, including these steps, can guarantee that your financial advisor is honest or will continue to be honest. However, if you follow these four steps you will be better protected from the likes of the Madoff’s and Stanford’s of the world when you choose your financial advisor.

Talk to friends, relatives, and coworkers for names of their trusted advisors. Referrals from other people are the best way to get names of financial advisors. Once you have a name than begin with step one.

Your first step is to go to finra.org, the public’s watchdog organization for financial advisors and brokerage companies. FINRA is the acronym for Financial Industry Regulatory Authority. It was created in 2007 with the consolidation of the NASD (National Association of Securities Dealers) and the enforcement and arbitration divisions of the New York Stock Exchange.

On the FINRA site, look at the investor’s section and click on the “FINRA Broker Check” tab. This will allow you to check on both the advisor and the brokerage firm the financial advisor is affiliated with. If there have been any problems or complaints with this particular advisor or brokerage firm it will be listed here. You must do this first even if the advisor has been referred to you. Remember Bernie Madoff and R. Allen Stanford? They did their business exclusively through referrals.

Once you are satisfied with what you have read on the FINRA site your second step is in meeting, face to face, your potential new financial advisor. This is your opportunity to interview the person who may be handling your life savings.

There is an old saying that you don’t get a second chance at a first impression. This is particularly important when you meet with your potential financial advisor. That “gut” feeling you get when you meet and talk with this person will help you decide whether this person is a fit for you.

Ask yourself are they too aggressive? Too arrogant? Too conservative? Too laid back?

Remember this person is someone whom you will be dealing with for many years. It is hard to trust someone if you don’t feel comfortable with them.

The third step is asking this financial advisor for references. Ask them, “Who are three clients of yours that I could talk to”? Now we all know that the advisor is going to give you three people that s/he knows well and gets along with. But that is not the point. The point is the advisor’s reaction to the question. Did the financial advisor hesitate to say okay or did the financial advisor say that s/he doesn’t disclose that kind of information?

There may be a very valid reason for not wanting to tell you because it may be against the policy of the brokerage firm to give out “any” client information. Based on my experience, this is a lame excuse. But what you have done is draw out the financial advisor and the brokerage firm so it fits your needs not theirs.

Maybe you like the idea of their not disclosing any client names under any circumstances. Then again maybe you don’t like the idea of this perceived secrecy. Ask for three client names and their contact information. Call the people. Listen to what they have to say very carefully. Then decide if this is a person you can work with, feel comfortable with, and can hope to trust.

How to Select the Best Financial Advisor

In light of recent Wall Street scandals, many investors are taking a closer look at who is actually managing their money and what investment methodology they are following. Investors are taking the time to do their due-diligence and are becoming more educated on selecting the best financial advisor. In my travels and meetings with clients, I continue to hear the same vein of questions. How do I select the best wealth manager? How do I select the best investment management company? Are there FAQ’s on selecting the best financial advisor that I can read? Are “Registered Representatives” fiduciaries? What is a Registered Investment Advisor? What is the difference between a Registered Representative and a Registered Investment Advisor? With such great questions, I wanted to take the time to answer these questions and address this fundamental topic of helping investors select the best financial advisor or wealth manager.

Question #1. How do I know if my Financial Advisor has a Fiduciary Responsibility?

Only a small percentage of financial advisors are Registered Investment Advisors (RIA). Federal and state law requires that RIAs are held to a fiduciary standard. Most so called “financial advisors” are considered broker-dealers and are held to a lower standard of diligence on behalf of their clients. One of the best ways to judge if your financial advisor is held to a Fiduciary standard is to find out how he or she is compensated.

Here are the 3 most common compensation structures in the financial industry:

Fee-Only Compensation
This model minimizes conflicts of interest. A Fee-Only financial advisor charges clients directly for his or her advice and/or ongoing management. No other financial reward is provided, directly or indirectly, by any other institution. Fee-Only financial advisors are selling only one thing: their knowledge. Some advisors charge an hourly rate, and others charge a flat fee or an annual retainer. Some charge an annual percentage, based on the assets they manage for you.

Fee-Based Compensation
This popular form of compensation is often confused with Fee-Only, but it is very different. Fee-Based advisors earn some of their compensation from fees paid by their client. But they may also receive compensation in the form of commissions or discounts from financial products they are licensed to sell. Furthermore, they are not required to inform their clients in detail how their compensation is accrued. The Fee-Based model creates many potential conflicts of interest, because the advisor’s income is affected by the financial products that the client selects.

An advisor who is compensated solely through commissions faces immense conflicts of interest. This type of advisor is not paid unless a client buys (or sells) a financial product. A commission-based advisor earns money on each transaction-and thus has a great incentive to encourage transactions that might not be in the interest of the client. Indeed, many commission-based advisors are well-trained and well-intentioned. But the inherent potential conflict is great.

Marketing Tips for Financial Advisors

As a financial advisor you are responsible for providing your customer with valuable information and advice on how to invest and utilize their money. This is not a job for the feint hearted and you need to know your industry in-depth to be able to make recommendations based on current trends.

As you can imagine, customers are very wary about the advisor they use. This is understandable because they don’t want to take unnecessary risks with their finances, especially when expecting to increase their funds for their retirement one day.

It is imperative that you take your marketing very carefully, ensuring that you reach your audience effectively and prove that you are a top choice to help them with their investment options.

The first step to success is to design an easy to use and informative website that can become a valuable resource for customers looking for various financial information. By increasing your brand visibility and becoming a resource in your industry, you can increase your customer base. If you become a reliable source of valuable information, more people will turn to you for your financial advisory services rather than using a company that they don’t know or have never heard of.

This is all about brand awareness, which is why your company should have an easy to remember and recognize name and logo. Over time your logo will be recognized by potential customers as the one that gives them the best and current advice and recommendations, again leading to your success.

Become an expert in your field. While you probably are already an expert in terms of knowledge and experience, it’s now time to prove that to your customers. You can create a blog which links back to your website. Writing regular blog posts on the latest financial trends can help you improve your visibility and prove to your customers that you are a top choice when they’re looking for financial advice.

Newsletters are a great way to reach your audience on a regular basis. It is imperative when creating a newsletter that you are consistent in when you send it out. This can be weekly or monthly, depending on your schedule. Remember your customers will expect to receive your newsletter regularly, so don’t fall into the trap of leaving it for another week. Again you need to write current and quality tips, advice and news.

It’s important to be aware that newsletters are not about selling, they are about you having an opportunity to inform your audience and get them to remember your name when they are looking for a financial advisor.

Another top financial advisor marketing tool is articles. There are a number of websites that promote articles across a range of topics. You should ensure that you have regular articles being published, enabling customers to find your company when searching for certain financial products and advice.

Press releases are an opportunity to keep your customers informed while telling them valuable information about you and your business. It is imperative when writing press releases that you eliminate any industry jargon and ensure that they are easy to read, enabling customers to understand what you are trying to portray.

A good opportunity when looking at your financial advisor marketing is to choose a services company that specialize in your industry. They should have a team of professional writers with extensive experience in the financial sector that can write your newsletters, articles and press releases for you, maybe even your website content. This can ensure that you provide customers with easy to understand and up to date information without taking time out of your own busy schedule.

Choose Your Financial Advisor With Care

Are you in debt? How are your investments fairing? Are you aware of what’s happening to your money? Does asking these sorts of questions cause you stress?

Now, a different type of question: wouldn’t it be nice to be in control of your financial future? Well you can be! Taking charge of your financial destiny is not something that only a few financially literate elite manage to achieve. It’s open to everyone. And with a little bit of planning, education and discipline, sound financial management is available to you too!

Choose your financial advisor with care

Everyone has an opinion about money. How to make it, where to spend it, how to invest it – the advice is endless. But do these people really know what they’re talking about? Next time someone offers you their advice on your financial planning, take a closer look. Are they in debt with few financial options, or are they well on their way to financial freedom? Decide if their situation is one you want to emulate.

Most of us – myself included – get bombarded with financial planning advice from friends and family, but is this really where your financial management guidance should come from? Can your close circle of friends truly give sound, objective information? Be careful who you take advice from, as planning for your financial future is not something to be taken lightly.

With a growing number of investment, insurance, pension and mortgage options making an appearance, successful financial management can seem daunting and getting proper advice for your finances is becoming increasingly essential. Even well-meaning advice can lead one down the wrong path!

Considering how important financial management is to most of us, it makes sense that we would want to get hold of the best guidance possible. Wouldn’t it make sense to invest in this advice? Surround yourself with knowledgeable people, get educated. If you decide to use a financial planner make sure of their track record, talk to other people who have used them, find out what their investments are and whether you want to use them as an investment advisor.

To ensure that the investment advisor or financial planner you choose has the proper credentials: ask what licenses they hold and whether they are registered with one of the financial authorities.

Depending on your time constraints, consulting a financial planner can be helpful to you initially in trying to improve your financial situation by providing advice on budgeting, future planning, insurance, estate planning and investment options, among other things. A good financial planner can help you to plan your short-term and long-term financial future, give you various options, hopefully make you aware of the different types of investment options which is helpful in improving your financial literacy. Education is vital to being able to make decisions about your own financial future, you need to be able to plan your finances to suit your needs.

Stay in Control

Most of us have the right intentions, but sometimes we just need some guidance to see our plans become a reality. Depending on what you need, a financial planner or investment advisor can provide the insight you need into financial planning to get you motivated and on the path to financial freedom, but ultimately you should take control yourself.

Kathy Roberts is mother of 3, a nurse, a property investor and a coach. Kathy is passionate about helping women to build their own wealth to gain security and independence. She has bought back her own home twice after divorces. She knows hands on what obstacles face many women. Today she is financially secure after having built a property portfolio from her nursing wage.