Baby Boomers – How to select a Good Financial Advisor?

How does a Baby Boomer find a good financial planner? This is an important question and should not be taken lightly because you may have a relationship with them for 30 years or more. So you need to do your due diligence on anyone you select.

There are plenty of Internet articles on selecting a financial planner but many of them focus on the qualifications and longevity of the financial planner and are written by the financial planning industry themselves.

I believe you have to interview them as if you will be their employer which in fact you will be for those 30 years.

You also need to get away from thinking in terms of a local financial planner. If you find a local one who qualifies then that is great. But I think you need to look nationally for the best one you can find. Try some on this list as a start.

Wealth Manager List

Or look at the Top 100 Wealth Manger List

You need to meet and talk with them first and ask them all the routine questions and some awkward questions like the ones I listed in my

10 Questions Baby Boomers should ask their Financial Advisors Now!

You must not be embarrassed about putting them on the spot. This is your money and your life. Here is an example of my questions.

The planner wanted to charge me $2,800.00 to put a portfolio together for me and then on-going fees of about $7,000.00 a year for putting all my money in Index Funds. I wanted the fees justified for an Index Fund which supposedly did little trading. But I think this was the cruncher.

“The plan should show us how these people’s portfolios performed through the 2001-2002 downturn. Real people and real results are what we need – not charts that show how DFA & Index funds performs from 2002-2007 when the market turned up. Give me the bad stuff too and how you helped the people through the bad times protect their nest egg.”

The response was:

“I only take on clients where I am confident that I will provide significant financial and other benefits to him or her.

Another prerequisite is that I can meet or exceed their requirements and be of service to him or her.

It has become increasingly clear to me that I will not be able to satisfy your frustration with fees and the industry in general.

I therefore do not feel that I will be able to meet your requirements and have decided to withdraw myself from your tender process.

I sincerely wish you all the best and the results that you are looking for.

Should circumstances change in the future I would be very happy to talk to you again.”

If they are not local to you a phone call will suffice for the initial interview but just have a check list of questions ready and get answers to all of them.

Look for ones that have a track record and are prepared to put it on their web site or blog. Look for ones that are active on the Internet promoting their business. The reason for this is that the Internet is a place where business is won by people giving away information and services to win their customers trust. Plus high profile financial planners will be very protective of their reputations.

The Internet is a level playing field for letting others know if your nest egg has been mismanaged. Bad news can spread virally through forums and blogs no matter how big the organisation might be and can be very damaging very quickly.

Once you have all the information make a short list of five or six and then meet/talk with them again with some “what if” scenarios and their philosophy and strategies.

Ask them for a list of clients from which you can select at least three at random to talk with. Get them to show you actual accounts which they can do if they cover up the names of the clients.

You then need to give them the information on your financial position and have them come back to you with a plan. Initially you should ask for an overview of how they would invest and manage your nest egg and you should ask for this for free. It should include their philosophy and strategy. This initial report is a “cost of sale” for them because they are selling you their services and can expect 30 years of your business.

Now you need to review each plan and rate it. One of the most important things to rate is how they intend to manage the downside risk to your nest egg. Do they intend to use Stop Losses to avoid large losses? Do they intend using Puts and/or hedging techniques to protect your portfolio? In other words will they actively risk manage it?

Another important thing to ask is how they will handle profits. Do they have a system for taking profits in good times and putting them in safer investments for the long term or to buy more risk based assets when the markets are down.

How do they intend to give you a pension? Will they create an income ladder or will they be fully invested and sell assets when you need the money. Or something in between.

You also need to find out who will have control over your nest egg. Will they be managing it themselves or will a third party be doing this? If there is a third party you need to check them out too as to who they are and how they will risk manage your nest egg.

If they actively manage it what system do they have in place to do it? Get them to explain how their system works and is it automatic or are there manual over-rides?

If they keep talking to you about the returns rather than minimising risk and avoiding losses first, you should seriously question them about this.

It is important to take control of the interview. You are the interviewer and they are the interviewee. They need to sell you on their services.

If this post is of interest to you and you would like me to create a kit of forms for interviewing prospective financial planners please ask this using the comments below and include any other suggestions you have. If the demand is there I will spend the time to do the research and come up with a kit bay Boomers can use.

Here is a sobering thought. Let’s assume for simplicities sake you have a $1M nest egg and your financial advisors manage to make enough returns to pay you a 4% pension, fight inflation, pay taxes, pay themselves 2% a year and maintain the capital at $1M. In 30 years you will have paid them $600,000.00 so you can pay yourself $1,200.000. This is plenty of compensation in my book. So spend the time to find a good financial planner.

One Response to “Baby Boomers – How to select a Good Financial Advisor?”

  1. […] control of our nest egg for the future. That doesn’t mean we should not use their services. Many financial advisors think like I do. They believe their job is to protect our retirement nest egg and help us manage it in retirement. […]

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