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How to rate the quality of financial advice

How do you know if you’re getting good advice about your investments? Many investors subscribe to the theory that good advice is much more than good performance.

In fact, a 1998 study conducted by the International Association of Financial Planners (IAFP) found that, for nearly half of investors surveyed, planning pays off not only in dollars and cents, but in a higher quality of life as well -- such things as peace of mind, comfort and confidence. Just slightly more than half those surveyed said the financial benefits outweigh the lifestyle benefits of planning.

Why financial planning?
Perhaps the most compelling reason to do financial planning is that advice is provided by one person who gets to know you well, fully understands your individual situation, makes recommendations in line with your expectations, and can even help coordinate with your legal, tax and insurance specialists.

The nuts and bolts of quality advice
Here are some components of quality advice that you should expect from an advisor:

Focuses on your goals. Whether you’re saving for your first house or planning your estate, an advisor providing quality advice should focus on what financial issues are important to you -- now and in the future.

Understands your tolerance for risk. You should expect advice that is not only in line with your goals, but that’s also in keeping with your ability to assume risk.

Creates a quality plan. Look for an organized document that’s tailored to your specific goals, presented in an easy-to-read and understandable format.

Responds quickly to changes. Good advice usually comes from an advisor who has direct access to state-of-the-art analytical tools to help you sort through your options. That way he or she can respond quickly and efficiently and help you make decisions if your financial situation changes.

Considers other factors. By considering other factors -- like taxes, for example -- an advisor should help you determine the best plan for your financial situation.

Provides periodic updates. The advisor should check with you periodically and provide personalized updates reporting the progress you’ve made.

Doing your homework
If you don’t know how to find a financial advisor who can provide quality advice, your best bet may be to seek referrals from family members and friends.

Once you’ve narrowed your choices, consider contacting your state securities administrator (the number can be found in your local phone directory) and the National Association of Securities Dealers (800-289-9999). Ask if each advisor on your list is licensed in your state and if there have been any complaints or disciplinary actions against him or her.

After you have determined that advisors under consideration have clean records, schedule meetings with each candidate. Ask them all the same questions so you can compare answers:

• What services do you provide?
• Do you specialize, and if so, how?
• What type of clientele do you serve?
• How are you compensated?
• Can I see a sample financial plan?

Most importantly, compare the questions each advisor asks you. The first meeting should be used to learn about you, your financial concerns and your investment temperament.

Once you’ve completed your meetings, carefully consider the information you gathered -- and don’t discredit your instincts. If all things appear equal, trust your instincts to help you select the right partner to provide financial advice and help you reach your goals.

November 11, 1999

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