Although I still hold my licensing as a financial adviser, I no longer work with individual clients. I was fortunate during my career to have an endless stream of clients due to the popularity of my books within the Christian community. One question I am asked frequently is how to find a good financial adviser. On Tuesday, Christian Money.com launched a nationwide directory of Christian Financial Planners. Press announcement about Christian Financial Planner.US
What Makes A Financial Adviser Good?
Don’t be fooled, there are no financial planners that you will find that have a 100% perfect track record on picking investments. If that is your criterion, you might as well give up on your search right now. Of course, a financial adviser should provide more than just investing advice. To begin with, however, I do want to address this aspect of the relationship.
In my view, a competent financial planner will match up the risk tolerance and earnings expectations of their client with the appropriate investments. While this sounds simple, it is really an art. I remember a middle-aged lady coming into my Orlando office with her checkbook and a pen out ready to write a check for $100,000 to open an account. She knew me from my books and radio show and did not even want to sit down and discuss her situation. Of course, I needed to get a some kind of an overview of her expectations, risk perspective, etc… She quickly informed me (as she started writing out her check) that all she wanted was a reasonably safe investment and needed $40,000 yearly in income. Yes, from $100,000!
Of course, she quickly came back to earth when I explained that the best I could do was an average of $6,000 to $8,000 per year and that was not a guarantee but a reasonable case scenario. I also explained that there would be up years and down years and this was an average that we would set as a goal but that there was no guarantee. Surprisingly, she still opened the account but left as disappointed as a small child learning that there is no Santa Claus (honestly, I don't know if I was practicing today that I could even set expectation levels at 6 to 8 percent based on the disappointing performance of the stock market in recent years).
A Financial Planner Should Provide More Than Investment Advice
When I first entered the financial industry I did so as a stockbroker. I sold stocks and bonds over the telephone, most of my clients never met me in person, and I knew little about their 'financial plans' for the future. I was servicing one very narrow channel of their financial needs. This was before I was the 'famous Jim Paris' and the only reason I made the income I did was 300 to 500 cold calls made each day. This was grueling and unfulfilling in more ways than I can recount.
My Choice To Become A Financial Planner
After transitioning away from the stockbroker approach I began working with clients in a more full service way. This included discussing insurance, tax issues, retirement and college savings, etc... I enjoyed this much more and saw how my clients were benefiting from this more complete approach. I enrolled in the College For Financial Planning Certified Financial Planner training and completed the program in 1995. Since I am no longer working with individual clients, I no longer maintain the CFP credential, but found it a highly useful training program and would suggest that this is a real feather in the cap of any financial adviser. I would not consider this a 'must' as there are plenty of other educational programs that can make a person completely qualified, but this is certainly one of the more highly respected programs.
Fees vs. Commissions
Financial planners are always engineering ways to make themselves appear to be the 'good guys' and the competition the 'bad guys.' One trend that began a few years ago was for some financial planners to move away from earning commissions and instead charge 'fees.' These could be hourly fees for advice or even a percentage of the money that you gave them to manage. So, either way you are going to pay them to work with you. The reason why some (including myself) lean toward the fee based approach is that it seems to make the recommendations much more independent and less tied to particular investment or insurance products. It would be naive for me to oversimplify this and say that all fee based planners are good and those that work on a commission are bad. I think competent professionals can be found in both arenas.
Common Sense Methods Of Finding A Good Financial Planner
The best option is to work strictly by referral. What you should be looking for is a referral from someone that you know personally that has a long term relationship of five years or longer with a financial planner. It makes a lot of sense to additionally contact your state and make sure that they are licensed to practice and have no significant complaints. Don't assume that simply because they say they are a Christian that they are ethical and follow good business practices. Some dishonest operators use the 'Christian label' as part of their scam.
You can also check with the national regulatory bodies as well:
North American Securities Administrators Association http://www.nasaa.org/about_nasaa/2062.cfm
Financial Industry Regulatory Authority http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/
U.S. Securities and Exchange Commission http://www.sec.gov/investor/brokers.htm
What Can Be A Tip Off Of A Bad Adviser
- Promises of unrealistic returns
- Seems to tell you what you want to hear (does not point out risk and other unpopular realities of investing)
- An individual that pressures you to make a quick decision
- Quick to criticize your current adviser and investments
- Recommendations to invest in unorthodox opportunities
Why It Is Not A Good Idea To Have All Your Money With One Adviser
In a word; Madoff. This guy had it all - references, education, a stellar background, etc... but he turned out to be a scam artist. After Madoff (and now the countless so-called 'mini Madoffs' that have been uncovered) I don't think that anyone should keep all of their investments with one firm. Read this article from Bob Yetman on How To Spot A Scary Financial Adviser.
Two more great articles by Bob Yetman on this -
Again, today we are excited to launch our new directory of Christian Financial Advisers and hope that this will be a useful resource for those seeking advice in their pursuit of good stewardship. Although our new directory will be a great resource for Christians and Christian financial planners to make a connection, we would still encourage you to complete your due diligence prior to making any investments or hiring an adviser.
Helping you make the most of God’s money!