I’m not going to kid you . . . being an adviser carries tremendous responsibility, so you need to know that “how an adviser does business” is not an accident or beyond his or her control. ALL advisers choose the services they want to provide, which licenses they need, which financial credentials they will earn and how they want to be paid. Before seeking guidance from an adviser about your specific needs and goals, you should categorize, sort, and compare them. You can then select and pose questions to the ones you might want to hire.
I created the “Seven Elements of How Financial Advisers Do Business” for my book, How to Get Great Advice & Avoid Scams. By asking the right questions, the “Seven Elements,” will form a picture of how an adviser works:
1. Licensing and Regulation: Your questions should be, “Which licenses do you hold and how are you regulated?”
2. Products and Services Capabilities: “Which products and services can you provide me?” And, equally important, “What financial services are outside of your expertise?”
3. Industry Titles and Self-Describing Labels: This information is usually on their business card. Ask the adviser to explain what the titles mean.
4. Degree of Adviser Independence: Some advisers are restricted by their licensing, or employment, as to the products and services they can offer.
5. Fiduciary Status: Being a fiduciary means that, for as long as the relationship exists, the adviser’s recommendations should be suitable and the best choice for the client based on his needs. (It is a “yes” or “no” answer.)
6. Method of Compensation: Don’t be shy about asking. There is no “best” way for an adviser to be compensated. All that matters is your comfort level and that the adviser discloses how he or she is paid (preferably in writing).
7. Financial Credentials: Check out the certificates hanging on the wall in your adviser’s office. Ask about his designations when you interview him.