Choosing a Financial Advisor: Five Things to Consider

By: A. B. Jacobs

It's not hard to find information on how to select a financial advisor. A visit to either of the search engines Google or Yahoo, in which you enter the words "Financial Advisor, Choosing," provides you with about a quarter million references, many of them highly prestigious. As you browse through the first hundred or so, as I did, you'll find remarkably consistent advice in abundance. You want an advisor that understands your goals, can recommend securities to fit your needs, that will help you allocate your assets, who possesses the proper credentials, and above all, someone with whom you can place your confidence. I'll admit that this sounds reasonable. So, with all this well-documented guidance, why do you need my counsel? I'll tell you why. Because, although the recommendations presented on the sites I visited seemed vaguely incontestable, none go beyond generalities. However, the world of investment is hostile, and on advisor selection you need specifics. Let me fill in the details on five vital concerns that you'll not find elsewhere.

1. Basis for confidence must be verified.

It's sad, but misplaced confidence is a primary cause of financial disaster for many investors. Of course, it's mostly preventable. Just as a leopard does not change its spots, persons with unsavory backgrounds tend to repeat. So, how does this translate? Consider no advisor on whom you've not obtained a) an exemplary personal credit report, b) a clean record for disciplinary actions and lawsuits, and c) personal recommendations from at least three current clients of adequate duration.

2. Select an advisor with sufficient experience.

There's something about the passage of time that tends to shake out the incompetents. As an industry undergoes its normal ebbs and flows, those participants who cannot acclimate are separated out, either voluntarily or otherwise. And those are exactly the persons you do not want advising you. It's my belief that anyone with less than seven years of verifiable experience as a financial advisor should not be considered. Why seven? There's just something about that time span with which I feel comfortable.

3. Evaluate an advisor's credentials.

Although it adds credibility, recognize that a Certified Financial Planner (CFP) designation is not the be-all and end-all of an advisor's qualifications. Only single courses in Estate Planning, Income Tax Planning, and Investment Planning are required in the six-subject course of study and, as expected, the latter subject focuses only on the traditional securities market. What you really require in a counselor is diversity. My financial advisor's credentials include a civil engineering degree from Rensselaer Polytechnic Institute, a Certificate in Real Estate from UC Berkeley, and the designation Certified Property Manager (CPM) from the Institute of Real Estate Management. His experience includes tax return preparation with the national accounting firm of Touche Ross, real estate appraisal for the General Motors Corporation, service as a superior court Receiver, organization and operation of a private trust company, and since 1978 has conducted his personal investments comprising a mix of real estate, corporate securities, and mortgage lending.

4. Select an advisor with a compatible investment pattern.

As an ideal investment goal, let your counselor's personal portfolio of investments reflect your own. If it does not, you've chosen unwisely. Then keep regularly abreast of your advisor's financial activities so that you may, if you choose, mimic them.

5. The payment to your advisor must avoid conflict-of-interest.

You do not want an advisor who profits by putting you in or taking you out of an investment. The best situation is where advisor and client profit or lose together. Next best is an advisor, paid to provide advice, with no financial stake in the decision the client makes.

The foregoing, though admittedly a skeletal view of the financial advisor selection process, provides crucial ingredients normally missing from most such analyses. The reason I can speak candidly is that I do not rely upon the financial advisory business for my livelihood. For an added bit of information on sound investment, you're welcome to visit Investment Guidelines for the Year Ahead in the Newsletter Archives on my website at

Al Jacobs has been a professional investor for nearly four decades. His business experience ranges from property management and securities investment to appraisal, civil engineering, and the operation of a private trust company. He is the author of Nobody's Fool: A Skeptic's Guide to Prosperity, available through Amazon and Barnes & Noble. His monthly financial column, "On the Money Trail," can be found at

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