How to Find a Financial Advisor

Jeff Brown, MD

Physicians are not trained to be financially literate, and most experience a lifetime of expensive mistakes to become functional, if not efficient, at their financial affairs.

Physicians are not trained to be financially literate (my perpetual theme and the reason for Physician’s Money Digest’s existence), and most of us experience a lifetime of painful, and expensive, mistakes to become functional, if not efficient, at our financial affairs.

A MetLife/Rand study found that 71% of people who hired a financial advisor before they retired considered themselves very satisfied with their financial situation compared to 59% with no advisor. Something about the physician who treats him/herself has a fool for a patient comes to mind. We need up-to-date knowledge and, importantly, objective advice to save us from ourselves, in a manner of speaking.

Finding a good match for your financial advisor is a slightly problematic. It requires some initiative and homework. A bit surprisingly, the most frequent impetus to finding an advisor is not proactive planning but after-the-fact, life-changing events, such as divorce, the death of a spouse, windfalls, career change, etc. Some advisors say up to half of their new clients have such crises as their motivation. Other advisors report that up to half of their new business comes from people rebounding from a bad experience with their previous advisor.

As in all things, best to get it right the first time. So where do we start?

First, obtain vetted names from knowledgeable sources such as Worth magazine. Other such lists are popping up online all the time. Just search. Next, ask your lawyer, insurance agent, CPA, and your wealthiest friends for any recommendations. Usually folks narrow the list to local people. It is natural to want to have convenient face-to-face meetings.

Realize anyone can hang out a shingle and call him or herself a “financial advisor.” Complicating matters is the myriad of certifying organizations. Happily, most financial experts agree the best appellation to look for is the CFP, or Certified Financial Planner.

CFPs have to undergo rigorous training and testing protocols, so it’s a good place to start. If individuals also have other certifications, then that’s fine. However, you do not want to work with someone whose primary career focus is elsewhere and being a financial advisor is a side job. This can happen with certified public accountants or lawyers.

Keep in mind there is only spotty regulation and oversight of this entire industry. Neither the Feds nor the states do a comprehensive job. So before you interview the 3 or so advisors you have narrowed your list to, check state and national sites to look for mention of irregularities or discipline.

Once you have your short list, schedule an appointment with each. These are typically without charge and are important for both sides. Financial advisors want alignment of interests as much as you do.

Like a Boy Scout, be prepared. Questions that you should start with include:

1. What are your credentials?

2. How are you compensated? This is important—look for fee-based only, not commission-based. A fee of 1% of assets managed is typical, although some will work on an hourly basis.

3. What kind of clients do you serve? This is also important. If you are worth $100,000 you do not want someone whose client base averages a net worth of $10 million, and vice-versa—their orientation and experience is too different, believe it or not.

4. Can I/we have 6 references? (Call the bottom 3.)

5. Have you ever been disciplined or sued?

6. Can I/we have a written agreement covering fees, fiduciary responsibility (important) and services?

On the flip side, you should be ready to answer the prospective advisor’s questions. If there is to be vital trust, you should be ready to share a copy of your last 3 tax returns, a list of debts, a list of assets, a rough budget, and any special situations you are concerned about. The best advisors take a holistic approach, wanting to know everything about you.

Be prepared to share your current thinking about financial goals, risk tolerance, financial philosophy, and services you want from this person and company. Or maybe you realize one of the reasons you are seeking out professional advice is to get help to start or work through the process. It does take a while to become educated in the peculiar customs and rules of financial planning and investing.

One thing that should not be on your list is a desire to receive investing advice that will consistently beat some benchmark, such as the Dow. If such a thing were possible, this unique person would be on his or her yacht on the Riviera, not sitting in an office talking to you. Having said that, if you find a good fit, your life will become easier, happier and you will sleep better.

Happy hunting.