Before you consider trusting any source of financial or investment advice, you should ask the following questions. Make sure to get the answers in writing, with supporting evidence, and disqualify any source that can’t answer every question with an unqualified “Yes”.
Are you competent? More specifically: “Are you competent and able to do the work that I need done?” A Certified Financial Planner license, in good standing, is generally considered to be the strongest credential proving competence in personal financial planning, but it is not, by itself, enough. A trustworthy advisor should also have a clean regulatory record and at least 10 years of documented experience in the field. An A+ rating from the Better Business Bureau over at least 10 years, and a college degree in mathematics, statistics or science are also supporting qualifiers.
Are you a fiduciary? A trustworthy advisor should be willing to commit to fiduciary obligation, in writing, and in all aspects of your business relationship. A fiduciary is obligated to put your interests ahead of all others, including their own, in formulating the advice they deliver. Believe it, or not, this is not a requirement to hold yourself out as a financial advisor! In fact, a minority of financial advisors operating in the United States act as fiduciaries to their clients. But fiduciary advisors are out there, if you’re willing to look.
Are you free from conflict-of-interest? This question needs to be asked because it is possible that an advisor will agree to limited fiduciary obligation while, at the same time, agreeing to act as a fiduciary to another – effectively trying to “wear two hats at the same time”. These advisors may be both investment advisors and securities sales people at the same time, for example, but there are many other sources of conflict that might motivate an advisor to give you less than the best possible advice. Any source of advice that has interests that are in conflict with yours should be disqualified from consideration.
Are you concerned? A qualified advisor should be able to demonstrate, through the way they conduct their business, that they are concerned about your welfare and the outcomes that are produced as the result of their advice. They should proactively engage in regular assessment of your progress towards your goals and not just wait for you to ask for help. They should be readily available to you whenever you have a question, concern, or decision that you’d like to address. In other words, they should take the initiative and accept responsibility for making sure that are on the right path towards your goals.
Are you cost-effective? A good advisor should be able to clearly explain their fees and costs, in advance, and in writing, and why it will be in your best interest to pay them. A good rule of thumb is to avoid paying more than 1 percent of your portfolio’s value, per year, for all investment-related costs, combined. That means the total you spend for advice, analysis, management and transactions should not be more than 1 percent per year.
Written by Mike Miles
For the Federal Times
Publication June 29, 2018