Narrow the Hunt for a Financial Advisor

Physician's Money Digest, February15 2004, Volume 11, Issue 3

The downturn of the markets combined witha stubborn, sluggish economy has left manydoctors scrambling for money advice. Andeveryone from stockbrokers and insuranceagents to bankers and CPAs are only too anxious toprovide that advice. The question is, whose adviceshould you listen to?

Making the Rounds

Money

Faced with a similar dilemma, a magazinereporter recently queried five different financial plannersin an attempt to make sense of his family'sfinances. He had recently married and purchased alarger condo. At issue were two main questions: Howto invest the profit from selling his last condo andwhat to do with the $20,000 he had in Microsoft(purchased for $13,000)? The advice he received wasall over the map.

An advisor at Charles Schwab recommended thatthe author's portfolio contain 40% stocks, whileanother at Merrill Lynch & Company suggested 80%.One advisor swore by Bill Gates and Microsoft;another swore at them. An advisor at JP MorganChase & Company told the reporter exactly whichfunds to purchase, while other advisors limited suggestionsto basic classes of funds to consider.Common among all financial advisors was their willingnessto provide substantial “free†advice duringinitial consultations with the hope of securing theauthor's long-term business.

Following initial consultations, fees can vary. Forexample, Schwab's fee could run as high as $1500 or0.75% of an investor's assets each year. Chase's feesrange up to 2.9% of assets, but investors are given theoption of paying per transaction. At Merrill Lynch,it's possible to pay nothing if you invest in certaintypes of mutual funds.

Making the Decision

Financial Finesse (www.financialfinesse.com), afinancial education organization, details some keysteps to take in the selection of a financial planner.They suggest that you start by obtaining a recommendationfrom a friend or unbiased resource (ie, someonewhose opinion you trust). In addition, seek out aplanner who has strong credentials. For example, theCFP® designation indicates that the individual hasgone through fairly intensive financial education andexamination requirements.

Next, interview several planners. More than likely,you are entering into a long-term relationship withthe planner, so make certain to ask specific questions.The National Association of Personal FinancialAdvisors (888-333-6659; www.napfa.org) suggestsfour vital questions to ask financial planners:

  • Do you make money from any sources otherthan the fees you charge your clients?
  • Will I always work with you, or might I workwith your partner or one of your subordinates later?
  • If you're going to manage my account, will youseek my permission every time you buy or sell something?
  • Throughout your career, has any professionalorganization, regulatory agency, or client ever chargedyou with an ethical breach?

It's important to clearly set expectations so thatboth you and the planner understand what is expectedfrom the relationship. Consider things like howoften you and the planner will meet, how frequentlyyou will receive statements, what type of accessibilityyou will have to your account information, and whatpricing structure the planner uses to reduce the chanceof hidden costs. In addition, make certain that theplanner's expertise matches your needs. For example,a planner who specializes in selecting stocks might notbe well versed in estate planning.

When interviewing prospective planners, consideran independent advisor who is affiliated with a well-knownfirm. That way, you're sure to receive recommendationsfrom all available options, not just thehouse brand funds through that planner's company.

Above all, ensure your financial security by checkingout your financial planner's professional standing,record, and background. You can verify a planner'scertification and licensing through the FinancialPlanning Association (800-322-4237; www.fpanet.org), the National Association of Securities Dealers(800-289-9999; www.nasd.com), or the SEC (202-942-8090; www.sec.gov).