MONEY MATTERS: 7 mistakes you can make hiring an advisor

By Sharon L. Thornton
BridgeTower Media Newswires

You have finally reached the point where you have amassed sufficient wealth. Either you need help investing or you are tired of trying to do it yourself. So the solution should be fairly easy: hire someone to handle your investments.

Don’t be deceived; in the world of investment advisers, not all are created equal. Titles can be confusing because they have no meaning.

Anyone can call themselves a financial adviser, wealth adviser and so on because competency and ethical standards are not tested until it is too late.

1) Not performing due diligence. Your first step before even meeting the advisor is to investigate their background. How long have they been in the business? What is their educational background? Do they change firms constantly? Most importantly, do they have any disclosures? If they have been suspended or have disclosures for selling improper investments or assuming more than appropriate risk for a client — run, do not walk away. If they have financial disclosures, why would you want someone managing your money when they can’t manage their own? All of this information can be found at the “Check Out Brokers and Advisors” section on the www.sec.gov website. Don’t settle for a “bad apple.”

2) Misunderstanding compensation. It gets even more confusing when the adviser refers to them as a “fee only” adviser or a “fee based” adviser. Sounds the same? In reality it is quite different. A “fee only” advisor charges a fee for their service. This is the only form of compensation that they will receive. A “fee based” advisor can still charge a fee and, in addition to that fee, receive commissions from transactions along with sales loads and trailing commissions paid by mutual funds. Does it sound like “fee based” has conflicts? It certainly does.

3) Know their advisory standards. Is the adviser bound by fiduciary or suitability standards? Your adviser should take a fiduciary role. A fiduciary is legally obligated to act in your best interest. If they are not “a fiduciary” then they are bound by “suitability standards.” Suitability simply means that the investment is appropriate for your investment needs. They can be serving you, but also serving themselves by receiving commissions above their stated compensation. Choose an adviser who wears the fiduciary hat at all times and will attest to the fiduciary standard in writing.

4) One size fits all investing. If you find an adviser that subscribes without questioning, beware. Proper risk must be determined by your goals and how much market fluctuation you can accept. Without thorough dissection of your goals, along with knowledge of your present investments, no one can make a proper prescription for investment success. It is your responsibility to understand risk and what your tolerance is to risk. If an adviser does not guide you through this process, they are not worth their paycheck.

5) Hiring the smooth salesmen. If the adviser only talks in a foreign language that you don’t understand, don’t just sit there and nod your head.
If you do not have clear communication in the beginning of any relationship it is doomed to fail. If the advisor only talks in jargon and talks at you instead of to you, they may not be the right fit for you. It is important for the adviser to find the correct level of understanding from the beginning of your relationship and they should help your understanding grow as the relationship progresses. Without communication your relationship will not prosper. Don’t believe that ignorance is bliss.

6) Doesn’t return your calls. There is nothing ruder than failing to return a phone call in a timely manner. By not returning a phone call the adviser is saying that your concerns or questions are not worth their time.

7) Falling for overpromises. If an adviser promises to always beat the market or makes other promises that entice you to accept them as your adviser, don’t do it. Advisers do not always beat the market and ethical ones will not claim this “crystal ball” ability. Instead seek out an adviser that has the proven ability to perform better than their market benchmark over a market cycle. Typically look for superior 10-year performance.
Don’t succumb to the “snake charmer.” Don’t be drawn in by a smooth salesman. Make sure that your adviser is qualified, experienced, is a fiduciary and works for you. Your future depends on it.
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Sharon L. Thornton is Senior Director of Investments for Karpus Investment Management, an independent, registered investment advisor that manages assets for individuals, corporations and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534 (585) 586-4680.