Lexington, KY - In these tough economic times, anyone planning to hire a financial advisor to help them manage and invest their money should carefully evaluate the person first. The process should involve more than just flipping through the Yellow Pages and choosing the first name that jumps off the page.
"The best way to choose an advisor is to get a referral from an acquaintance, relative or friend who is happy with the person who is handling their investments," said Anthony Davidson with Davidson Financial Services.
It's a good idea to meet with and interview potential advisors to find someone who is sympathetic to your personal financial goals.
"I'd want to make sure they had my interests in mind, not theirs," said Larry Botts of Wealth Coach of Kentucky. A competent advisor will assess not only a client's finances but their mission, visions, values and goals as well, Botts said.
Before you hire a financial advisor, learn about her or his education and investment experience. You also need to know your own investment agenda. If you are a risk taker, convey that to the financial advisor. If you are more risk averse, let the financial advisor know. It will help the advisor serve you better.
"There are so many different philosophies about investing. It's important for an investor to find an advisor whose philosophy is consistent with their own investment philosophy," Davidson said.
Compatibility is another important consideration. It's a two-way street for Botts.
"We want to make sure we work well together," he said. "We want to make sure the client is satisfied with us and we're satisfied with them."
"Find someone you're comfortable with," said Kelly May, public information officer with the Kentucky Department of Financial Institutions (DFI). "You want someone who's going to find out enough about you that they can actually help you, and you want somebody that you're comfortable talking to, that's treating you the way you want to be treated."
You can investigate a financial advisor's credentials by going to the DFI's Web site at www.kyfi.gov. The DFI registers and examines brokerage firms, investment advisers and agents, along with the securities they offer. The department also takes complaints and investigates suspected wrongdoing. You can also call the DFI at 1-800- 223-2579 to check on a financial advisor's registration.
There are also red flags clients need to watch for when choosing a financial advisor.
"One red flag would be high pressure," Davidson said. "A good advisor is not going to pressure anybody into doing something with their money that they're not totally 100 percent comfortable with."
May said clients should be wary if the financial advisor recommends switching from one product to another a lot. They're getting a fee each time they switch you, May said.
Another caution is an advisor who tries to push a product on you before they get all the pertinent information about you, without learning about what you need or coordinating the new offering with other products you have, Botts said.
"You have to have somebody that would be honest with you," Botts said.
Other red flags include special guarantees, promises of no risk with high rewards or returns, limited-time offers, requirements for advance payment or an advisor who insists on dealing in cash only. Of course, when an offer sounds "too good to be true," it usually is.
Davidson believes it is important for a financial advisor to invest his or her own money in the products he or she recommends to clients.
"I think it's real inappropriate and probably a conflict if an advisor is recommending their clients put their money in an investment that they don't have their own money in," he said.
A client would know that if their account is down, their advisor's account is going to be down, too. And if they're making money, they know their advisor is making money also.
"I shouldn't put your money in an investment that's going down while I have my money in something else that's going up," Davidson said.
As with any professional you hire - be it a doctor, a mechanic or a hairstylist - if your financial advisor isn't living up to your standards, you have the right to fire him or her. If you suspect fraud or misuse of funds, you can file a report with the DFI or the Financial Industry Regulatory Authority (FINRA), which conducts periodic audits of broker/dealers and their representatives. FINRA may initiate an investigation, and if it uncovers wrongdoing, the consequences can range from a reprimand or sanctions all the way to loss of license or criminal charges.
Doing your homework and your own research can help you avoid negative situations and promote a good relationship with your advisor. Knowing you have chosen a competent financial advisor can make you feel secure about your investments.
"It's very important to me that my clients don't worry about their money," Davidson said. "The right financial advisor can provide peace of mind."