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Finding a Financial Advisor

Making the decision to hire a financial advisor is often a tough one for many investors. Once you have made this decision, how do you go about finding the right advisor for you? Here are seven questions to ask:

How are you compensated?
While one could argue that no method of adviser compensation is totally without bias, fee-only advisors come the closest. Fee-only advisors receive no compensation from the sale of investment or insure products. Can an advisor who receives significant portion of their compensation from the sale of financial products really be counted on to recommend solutions that are in your best interests? Additionally, are the fees outlined and discussed in advance to writing? This will help you avoid “bait and switch” tactics, or being advertised a service at one price and then given a different rate once you are in the door.

Who is on your team? 
Most financial advisors are small organizations within bigger ones. One of the crucial questions regards who does what within their team. Is he or she doing the financial plan preparation AND Investment analysis AND Customer Service AND business development. Your main goal should be to make sure your money is handled well, and making sure the firm you choose is not overextended or unable to meet your needs.

What services do you provide?
If the advisor’s primary service is investment advice and you are looking for financial planner to construct a strategic financial plan for you and your family, this advisor is likely not a good match.

Will my assets be housed with an independent third party custodian?
This applies if the advisor will be providing on-going investment advice. Examples of third-party custodians include Charles Schwab, Fidelity, TD Ameritrade, and most other brokerage firms and mutual fund companies. A third party custodian provides periodic (at least quarterly) statements independent of any reports provided by the advisor. Bernie Madoff’s failure to use an independent custodian enabled him to defraud investors for so many years. If an advisor tells you that you need this type of arrangement it should raise many red flags and extreme caution should be exercised.

Do you have any conflicts of interest that influence the advice you provide?
Financial advisors who are registered representatives will often be incentivized to sell insurance or annuity products promoted by their broker dealer. Ask how they select their financial and investment products they recommend to clients. Ask them directly about all forms of compensation they will receive from working with you, and if they will disclose this information on an ongoing basis. Ask them if there are any restrictions regarding the products they can recommend.

Do you act in a fiduciary capacity towards your clients? 
In layman’s terms, you are asking if the advisor is obligated to put your interests first. The brokerage industry uses the suitability standard, but this falls far short in this regard. This argument continues in the financial services industry as the regulators work through this issue.

The questions listed above are just a few of the many questions you should ask when choosing a new advisor or an advisor with whom you currently have relationship. As an investor, it is ultimately up to you to select the right advisor. Do your homework and due diligence.

This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

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