By Sheryl Rowling
SAN DIEGO — Q: I’m looking for a financial advisor. Is there anything I should know?
A: I always recommend looking at the four “C’s”, which are:
- Credentials – Look for an advisor who is an RIA (Registered Investment Advisor) and who has earned a professional designation such as PFS (a CPA Personal Financial Specialist) or CFP (Certified Financial Planner).
- Competency – Experience and education are important when you are trusting someone with your life savings.
- Compensation – Go with a “fee-only” advisor. Advisors who earn commissions (either telling you that’s how they make money or telling you that you won’t pay anything for their advice) make their money based on what products they sell to you. If you want unbiased advice, go to a professional who only gets paid for giving advice.
- Comfort – A financial advisor is someone who you will (hopefully) work with long-term and will know your goals and concerns. If you don’t feel comfortable with your advisor, the relationship won’t work.
Q: Is there an easy way to tell if an advisor will sell me products?
A: Yes. If the advisor’s business card says “Securities offered through…” at the bottom or on the back, you are likely dealing with a stockbroker or is insurance person who will be selling commissioned products.
Q: Why is this so important? Do I really need an RIA?
A: To answer, I will explain the difference between the duties of a stockbroker and those of an RIA. A stockbroker is held to a standard of “suitability.” This means that if a US stock fund is suitable for you, it’s ok for the broker to sell you a fund that pays him a commission of 5 percent up front and has internal management costs of 2 percent. An RIA has a “fiduciary” duty to put the interests of the clients first; in other words, she must do what is best for the client. So, if you need to invest in a US stock fund, the RIA must recommend the fund she feels is best for you. And, a fee-only RIA will only utilize “no load” (no commission) funds that have a good performance record and low internal management costs.
Q: I already have an advisor. How can I tell if he is not doing what’s best for me?
A: Beside determining how your advisor is paid and whether or not he’s an RIA, you can look for signs that might indicate he’s not putting your interests first:
- Does he recommend that you purchase an annuity, especially if he wants you to hold it in an IRA or you are over age 70?
- Are there numerous and frequent sales in your account, especially if they are small lots or produce short-term gains?
- Are you told that you can’t sell something for several years or you will incur a surrender charge?
Finding the right advisor is important. To learn more about fee-only advisors, check out the NAPFA (National Association of Personal Financial Advisors) at www.napfa.org.
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Sheryl Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com