A lot has been written on this topic over the years. This is probably the most difficult and the most important step in your financial future. The reason that finding a good advisor is so difficult is the corporate world produces very professional looking and talking salespeople.
Most of the Financial Advisors or Brokers/Investments Reps that I know are nothing more than well polished salespeople. Their product is investments. They can make any investment look right for portfolio and give you reason after reason to buy it. They will even print reports and professional looking literature to convince you that these investments are a "good deal" and you shouldn't pass it up.
Some investments are a good deal and could be taken advantage of but only if they truly fit your needs and your families needs. So how do you really choose a good financial advisor and what does he or she look like? What do they do that really makes them better than the rest?
The first thing that they will do is get to know you and your situation before they invest your money. Clients sometimes feel like this is small talk and wants to get the main point quickly. The main point is you! Our part as a Financial Advisor is to get to know you so that we can make the best recommendations possible for your situation. We work together as a team. That way, every investment is made according to your goals and not according to the new "hot" thing.
How do you know that this is what's happening? Your advisor will provide you with a written plan. They will refer to it when talking about new investment opportunities. You should know well beforehand what the next investment should be. Your plan will show you and your advisor.
The next way that you can tell that you have a good advisor is how they get paid. I am a firm believer in a fee-based arrangement. In a commission based arrangement, the broker gets paid up front for picking an investment and selling it to you. Ever feel like your broker is just trying to get paid? The amount that you pay the broker has nothing to do with how good the investment is. There are times as well when the broker gets paid when you sell the investment too. That amount is not based on how well the investment performed. This arrangement usually ends up being more like a salesman-customer relationship.
The better way is to have a fee-based arrangement. You deposit money with an advisor and you are charged an asset fee. These are usually taken out monthly and based on an annual percentage. Then the advisor invests according to your needs and goals. What that means is that if your advisor performs well and chooses good investments for you, they get paid more. If they do poorly then they get paid less. The investments then are chosen based on how well they fit into your plan for investing. Finally, a client doesn't have to worry about the commission problem anymore. This arrangement aligns the client and the advisor on the same team, working together to achieve the clients financial goals.
Communication is the final way that you can tell if your advisor is good. This is especially evident when the market takes a downturn. Are they communicating with you? Are they following the plan set up to whether the downturns? Are they doing anything at all to help you recover your losses?
Finding a good advisor is a difficult thing to do. When searching, ask if the advisor that you are talking with does each of these things. Ask about their plans and how they prepare them. Ask for details on how they get paid. Ask them what they do and what kind of strategies they have in place in case the market does slow or have a downturn in the future. Above all, don't settle. Keep looking until you find exactly what you are looking for.
