By Karl Edmunds:

Almost everyone has felt the pleasure and pain of financial mistakes. Whether you have a good retirement plan and make all your own decisions or engage an outside investment advisor, you are not going to have a perfect track record.

Personally, I think the vast majority of people will do better with outside help of some kind as long as you don’t blindly turn over all decisions and strategies to the advisor. It is critical to remain involved and participate in the process over time.

Turmoil in the markets over the past few years has tested the mettle of almost everyone. Many have changed advisors hoping for a better track record. Changing advisors in the midst of market turmoil is very challenging so I have developed some key factors to help in the selection of a financial advisor.

Outlining a few key factors doesn’t guarantee a successful search for a new or first time advisor. Each person must understand their own personal motivations and risk tolerance, be fearless about asking questions during and after the search process and evaluate the personal chemistry in the relationship. These elements all bring needed insight to the process.

During the advisor search, consider the following…

• Is the advisor equipped to do the job? This includes education, licensing, years of experience doing the job meaning they have faced two or three classic market cycles.
• Does the advisor’s business or office have adequate industry research and informational support? This means access to market data, key industry reports, contacts within the industry etc.
• Does the advisor tend to exaggerate their skills and dismiss your market perceptions and risk concerns? Beware of the “God Syndrome” among advisors who believe they almost never make mistakes.
• Does the advisor routinely prepare a documented investment plan that outlines your strategy, risk tolerance, investment approach and fees?
• Who makes the final decision when a recommendation is made by the advisor? If the advisor minimizes your involvement or role in the decision process, move on.
• Has the advisor offered full and complete disclosure about compensation? This should be disclosed by type of investment and amount especially when the fees are earned as a commission. Commissions and transaction costs can severely impact the long term growth and performance of your account.
• If trading errors occur while managing the account, does the advisor and his firm have the financial clout to make your account whole if they are at fault? Be sure to read the fine print of the Advisory Agreement to understand the policy and resolution process.
• Seek referrals to advisors from professional people including personal accountants, attorneys etc. Professional people are usually cautious about referring people to unqualified sources. And talk with some current and past clients as long as they aren’t friends and family of the advisor.
• Extend your personal due diligence by contacting firms such as the Paladin Registry www.paladinregistry.com to determine if they have screened the advisor.
• If you proceed with a selected advisor, don’t just file your monthly or quarterly statements after a brief review. Carefully examine and periodically verify trades.
• Be cautious about extraordinary claims regarding performance. If an advisor is proclaiming performance well outside other advisors investing in the same categories, there is something wrong.
• Take a long term approach and don’t buy the story about creating higher income or rewards with no increase in risk.

Bottom line, don’t be shy. Ask every question you need to for clarity and comfort. And remember, advisors aren’t marriage partners. If they don’t perform or you don’t find a quality relationship, then make a move. You won’t always get it right but making hard decisions with a good advisor is worth the effort.

____________________________________________________________________________________
About The Author:

For more than 20 years, Karl Edmunds has been a noted author within the business and management consulting arena. As a senior, he now engages his curiosity and observations about life to write about key issues of importance to the growing community of seniors (Boomers), and the value of living life to the fullest every single day. Give me your comments and suggests at http://Plan-Retirement.org or http://For-Seniors.org