In Finding a Financial Advisor, the first thing to review is your potential advisor’s professional qualifications. The second question to ask is, “What experience do you have?”
Relevant and in-depth experience is obviously an important factor. Here are some things to consider.
Experience to Match Your Needs
Stating the obvious, you want a financial advisor whose skills and experience meet your requirements. Obvious, yes. But not always an easy thing to assess when interviewing potential advisors.
Within any professional qualification there may be a wide range of technical areas of proficiency. For example, Chartered Financial Analysts (CFA) are found in a wide variety of professions.
Perhaps you are seeking a CFA with 10 years experience to run your mutual fund. You want someone with 10 years experience in fund management. Likely not a Chief Financial Officer, Risk Manager, or Financial Advisor. But all may be CFAs with 10 years experience.
Or if you need a Chartered Professional Accountant (CPA) to handle complex tax issues, you want one with significant experience in taxation. Your local audit manager, insolvency partner, or managerial accountant may not be a good fit. As with CFAs, CPAs come in a variety of skill sets and experience.
Do not blindly assume that all members with a particular professional designation have the same skills and experience. You need to discuss their specific areas of expertise and ensure they match your requirements.
Amount of Experience
The amount of experience you seek is based on your needs.
If you have a relatively straightforward tax return, a professional with only a few years experience may be fine. But if you need to perform a complex estate freeze, you may want someone with more experience.
In the perfect world, you would always choose advisors with the most experience and best reputation. But the greater the expertise, usually the greater the cost. Find advisors that meet your needs, but do not go overboard. Put as much of your money as possible to grow on your behalf. Not in the bank account of your lawyer, accountant, and financial planner.
While you may not require Warren Buffett to give you investment advice, you do want to pay for competent advice.
I know more than a few people who have used professionals (lawyers, tax accountants, etc.) on the cheap. They paid a huge price in the long run. If you need a car, I am not telling you to go out and buy a used Yugo. All I am saying is that you probably do not require a brand new Porsche.
But Get Someone You Can Grow With
When assessing experience, always consider your (realistic) future needs.
Today you are in your 20s, with no family, and are just starting to invest. Maybe all you need is someone who can help you buy mutual funds.
But perhaps you plan to buy and home and start a family in the next 5 to 10 years. Is the mutual fund salesman the right person to help you in the medium term? Perhaps, it depends on the advisor.
You should assess your realistic future needs (realistic means what will likely happen, not what will happen if you win the lottery, invent the next iPod, etc.). Then determine if your potential advisor and his team can assist you with your future requirements.
If not, it might be more efficient and cost effective to start with an advisor who can help you as your needs evolve. Otherwise, you may need to change advisors mid-stream and that may cause problems.
We will look at this issue more in our next post on the subject, Financial Advisor Service Offering.
