Elizabeth Harris
01/01/2006
1) Prospecting For Prospects
Apart from word-of-mouth recommendations, individuals looking for financial advisors may wish to consult these sources:
• Worth’s Top 100 Wealth Advisors list is updated annually and published in our October issue.
• The National Association of Personal Financial Advisors’ website (www.napfa.org) can be used to identify fee-only financial planning professionals.
• The Financial Planning Association’s website (www.fpanet.org) has a database of advisors, many of whom hold the certified financial planner credential.
2) Detective Work
• Web-based disciplinary databases are a boon for individuals seeking to vet potential advisors. You can see whether a certified financial planner, for example, has been disciplined by the CFP board at www.cfp-board.org.
• Advisors with more than $25 million under management are required to file a detailed questionnaire, Form ADV, with the SEC. This documents everything from the volume of assets an advisor oversees, to the compensation scheme employed, to information on any violations or disciplinary actions. You can ask the advisor for a copy or check the SEC’s website (www.adviserinfo.sec.gov).
• Advisors with less than $25 million under management are regulated by state securities commissions, which can provide similar information. Contact information for state securities regulators is available from the website of the North American Securities Administrators Association (www.nasaa.org).
• Go to www.nasdbrokercheck.com or call call 800.289.9999 to check backgrounds of NASD-registered brokers or firms. Visitors logged nearly 3.8 million searches and requested more than 190,000 reports in 2004, according to the NASD.
3) The Interview
Trustworthy advisors do not mind answering detailed questions about themselves and their businesses. Some important areas to cover are:
• How do you get paid, and to what extent is your compensation scheme negotiable?
• Have you been involved in any client lawsuits or arbitration hearings? What was the outcome?
• Have you or your firm ever been disciplined by any regulatory or self-regulatory organization?
• Describe a typical client.
• What is your client retention rate?
• How often do you contact your clients?
• How did your model portfolio(s) perform last year versus its benchmark(s)?
• How much expertise do you have in-house and how much do you outsource?
You can find a list of other suggestions and additional questions to ask on the SEC’s website (www.sec.gov/investor/pubs/roadmap.htm).
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