My friend, Kim, is a fee-only for-services financial advisor. This means that she is not selling a product, she is there to advise her clients on what their financial situation looks like, and to make recommendations to help them achieve their goals. I asked her to write a post about what to look for when you are choosing a financial advisor who is affiliated with a company (because you will have to at some point if you'll be purchasing life insurance or other financial products and investments). Her post follows, but I'd add to what she said that company stability is very important. Choose someone who works with a conservative company. (NW Mutual and NY Life come to mind.) Also, equally important, choose a person who you like, who understands your financial and personal goals, and who you feel that you can trust. Here is Kim's post:
Does size matter?
Does size or affiliation matter when picking firms? There are some advantages to working with a financial adviser at a large firm. Firms like Merrill Lynch, Morgan Stanley, Smith Barney, and even Charles Schwab offer the convenience of finding almost everything you may need in one place. From mutual funds to mortgages, business lines of credit to life insurance, and a wide range of services in between; all found by making “one-stop”. There are also some disadvantages. Here are some things to watch out for when working with an adviser at a large firm.
First, be aware of proprietary funds. If your Ameriprise adviser only recommends Ameriprise funds, then your adviser is using proprietary funds. This can be a problem for two reasons. First, conflict-of-interest may be a problem. Often the firm will pay the adviser more for using the firms’ funds. This “pay” difference may be indirect. For example, they may receive additional or matching bonuses for selling “x” amount of the fund. Additionally, internal peer pressure to sell the company fund may also create a conflict-of-interest. So, the adviser may be making recommendations based on what is better for him/her. Second, tax consequences may be a problem if you move to another adviser. Proprietary funds can only be held at the issuing firm. As a result, if you (or your adviser) leave the firm all funds will need to be sold. Any gains will be taxed as capital gains. Other funds are more easily transferred between firms. Transferring a fund does not trigger a tax consequence.
Typically these advisers at large firms are managing anywhere from 200 to 400 plus clients. As a result, many clients do not get annual reviews. Annual reviews are an important tool. Not only does it highlight investment performance against benchmarks, but also tracks progress to your goals. Additionally, client service may also suffer greatly with a heavy client load. It may take a day or two for a phone call to be returned, if it is returned. It is up to you to clearly communicate your expectations to the adviser. Explain your expectations early in the process to help decide if he/she will be a good fit.
Another pitfall is that these firms do have so much to offer. As a result, clients may be sold products they don’t need. As an example, an adviser may recommend permanent insurance when term would be more appropriate; or a bond fund when treasuries or cd’s would be a better fit.
Hiring a financial adviser is an important task. They manage your money which ultimately impacts every aspect of you life. If you do work with an adviser at a large firm then you need to do one of two things, or both. Commit to educating yourself on financial investments. The internet, books, seminars and workshops are good places to start. Alternatively, you could hire a third party (conflict-free) fee only Certified Financial Planner™ (CFP®). A CFP® who is a fee only planner does not sell mutual funds, stock, life insurance or any other investments. Typically, a fee only planner will work on an hourly basis. Not only do they help ensure that you are on track for your goals, but they also make recommendations based solely upon your need for them. A CFP® will work as your advocate. To find a CFP® in your area go to www.cfp.net and click on “Search for a Financial Planning Professional”.
Kimberly Perreira is passionate about working with families and business owners (including professionals). Kim is a conflict-free financial planner. She lives in Hillsboro with her husband, son, twin daughters, and two dogs. When not playing with family, she enjoys reading, yoga, and trying new classes. You can contact her at 971.226.8926. For more information about her services visit www.cawaring.com.
