Finding A Good Financial Advisor
15 August 2006Consumer Reports has some good advice on their website for people looking to find a financial advisor. As you might expect, a lot of people have problems with this. Many brokerage firms will pawn off low level brokers on people who don’t have that much money saved up, often giving them self-serving investment advice:
Late in 2005, American Express Financial Advisors (now Ameriprise Financial) paid more than $58 million to settle charges that it promoted mutual funds from which it received kickbacks, allowed some clients to do illegal market timing, and sold out-of-state 529 college-savings plans without explaining the negative tax consequences. In fall 2005, the National Association of Securities Dealers (NASD) began investigating whether Merrill Lynch & Co. call-center employees dumped less-wealthy clients (those with less than $100,000) into unsuitable investments to boost profits.
So other than the tips Consumer Reports gives on that page, how do you make sure your financial advisor is a good one?
1) Ask about their own portfolio. They ought to be willing to disclose how well they’re doing themselves - after all, you’re about to disclose all your own personal financial information to them. If they aren’t doing well, then why should you expect them to do any better with your money than they do with their own?
2) Call professors of accounting and finance at local colleges who have been around awhile. They can often give you advice on good former students who have been practicing for some time.
3) Ask them questions where you already know the answer. If you want to be sure they’ll give you the right answer on things you don’t know about, ask them about things you do. Research a question extremely well and then ask them for advice on it - if they tell you something that’s wrong, they don’t know what they’re doing. If they give you advice that you don’t like (too risky, too cautious, etc.) you might not be a good match for that person’s financial strategies.
Discuss this on the Free the Drones Financial Forums here.
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