Tips for Finding a Financial Adviser

By John Austin

RISMEDIA, Oct. 27, 2008-(MCT)-Everybody seems to agree that we should be talking to our financial advisers regularly these days, given the unsettled economy.

North Richland Hills, Texas, resident Charles H. Cole Jr., 70, would like to do just that. The problem is he’s not sure whom to enlist.

“I can see where I need a lot of advice,” said Cole, an engineer who has managed his own money since he rolled most of a 401(k) into IRAs in 1998. “I’m probably down 12 to 13 percent. I need to simplify my funds.”

Cole was not alone in wanting advice, although he seemed to be doing better than many investors.

“We’re seeing a significant number of people coming in,” said Derrick Kinney, an Arlington, Texas, financial adviser. “I think people who are coming in now are saying, ‘I’ve done this for years, but now I’m scared.'”

Of course, it’s difficult for even the experts to find their way at the moment.

“The problem is, with this market, there are not that many places to hide,” said Joe Lipscomb, professor of finance and real estate at Texas Christian University. “We’re in very uncertain times.

“Watching the market and understanding the market is a full-time job,” Lipscomb said. “If you don’t know what you’re doing, get some help.”

Finding an adviser is as easy as looking in the phone book or online. But the string of abbreviations that advisers often append to their names doesn’t do much to inform non-experts. Two of the best-known designations are certified financial planner, or CFP, and chartered financial consultant, or ChFC.

“Now, hands down, the certified financial planner is the preferred designation,” said Randy Guttery, associate dean for graduate programs at the University of North Texas, who is himself a ChFC. “Only 3 percent of financial planners are certified financial planners. It’s no guarantee, but they’ve crossed a threshold 97 percent haven’t.”

Planners are typically paid in one of three ways, said Ken Moraif, a Dallas-based adviser. Some charge a commission on sales. A smaller number create a plan that investors can execute themselves. Moraif said that’s usually unsuccessful.

The third method is a percentage basis.

Those with smaller amounts to invest – say, $20,000 – may have trouble finding anyone to help.

“If you’ve got $100,000 or more of investible dollars, not counting your home, you should be able to find someone,” Moraif said. “And that includes us. Now more than ever.”

John Loyd directs the University of Texas at Arlington’s CFP program. He acknowledged that CFPs may be out of the price range for lower-middle-income investors. But he said he’d be willing to give suggestions to anyone.

“Pretty much everybody out there needs a professional adviser,” Loyd said. “Eventually you’ll be able to land on somebody who’s willing to help you.”

The Certified Financial Planner Board of Standards, a nonprofit professional regulatory organization, sets the rules for its certificants. Guttery likens the CFP to the quarterback of a team that can include up to five other players: experts in insurance and risk management; investments; tax planning; estate and trusts; and retirement and benefits.

“No one can be an expert in all five areas,” Guttery said, adding that the CFP may also play another role on the team. “But you do need someone who’s knowledgeable in all areas.”

Loyd said CFPs “will be head and shoulders above 90 percent of the people out there.”

The designation requires extensive coursework, an accredited undergraduate degree, relevant work experience and a passing score on a national exam. The pass rate on the most recent two-day, 10-hour CFP exam: 54%.

The American College, an accredited not-for-profit Pennsylvania-based organization, grants the ChFC, a designation that dates back to 1982. It, too, requires extensive coursework, experience in the industry and continuing education.

Loyd refers to some of the less-established programs as “fake IDs.”

Eric Gordon, a spokesman for The American College, said: “There is confusion out there in the marketplace. There are solid programs. There are others that are not as strong.”

Looking beyond them is imperative. Investors should consider who’s on the other end of the phone at mutual-fund help lines, Moraif said.

“Keep in mind that they’re an 800 number,” he said. “It could be a 25-year-old who’s been in that chair for a year.”

Lipscomb recommends asking a friend or associate who’s enjoyed success with an adviser. Watch out for salespeople, Moraif said.

“You’re trying to differentiate between a financial salesperson and a financial adviser,” Moraif said. “If somebody leads with product, that’s your clue that they’re a salesperson.”

The first question a good adviser will ask: What problem do you want solved?
Kinney prefers a relationship in which the client reviews things with the adviser multiple times a year. The adviser should be accessible by phone and e-mail and provide a written, comprehensive financial plan.

He cautions investors against advisers who claim that all their financial goals can be solved with a single product or who offer no client follow-up.

“It’s a diagnostic relationship,” Kinney said. “They’re the neutral third party who has your interest at heart.”

Cole, the engineer who is still shopping for an adviser, has attended seminars, including one with Moraif.

“I ended up not doing anything,” Cole said. “I wish I had. He’s the one who took his clients out of the market.”

Moraif said he took his clients out of the bull market in November, shortly after the market topped out in early October.

His firm manages about $800 million. His advisers put clients into money-market funds, Treasury securities and ultra-short-term bonds regardless of their circumstances.

“It’s not a cookie-cutter approach,” Moraif said. “It’s a preserve-your-capital approach.”

The market’s volatility and his firm’s proprietary matrices motivated him to make the call, Moraif said.

“Anybody can make money during good times,” Moraif said. “Right now people are panicked out of their minds.”

In addition to being a CFP, Moraif is a registered investment adviser. RIAs deal typically with high-dollar investors and are registered with the Securities and Exchange Commission.

Moraif’s niche: investors with $500,000 to $3 million of investible money, although he has clients outside those parameters on both ends. His highest annual fee is 1.25% of assets under management. The larger the account, the lower the fee. There’s no charge for trades.

For those who can afford to buy in, he recommends an RIA. He compares working with an individual, corporation or partnership RIA to hiring a board-certified heart surgeon instead of an uncertified doctor. Moraif also recommends someone who’s been in business at least 10 years and who’s “at least” a CFP.

“Make sure you like them,” Moraif said. “They may have all of the above but if you don’t, your relationship is not going to work.

“Also, I’d want to go with somebody who manages at least $25 million,” Moraif said. “You don’t accumulate $25 million by talking to two people.”

And remember, Lipscomb said, that even the best advice comes with risks.

“I have friends who tell me they cashed out when the market was above 13,000. I say, good for them,” Lipscomb said. “I know lots of people who had advisers who are hurting now.”

What to Ask A Prospective Financial Adviser

What financial services will you provide me?
Is your use of financial products and services limited?
How are you qualified to provide those services?
How will I pay you for financial products or services?
What are your educational qualifications and areas of study?
What professional licenses do you hold?
Have you ever had any disciplinary problems in this field?
What are your work history and experience with clients like me?
What hours do you work and when are you not available?
How often will you contact me?
What to ask clients who refer an adviser
How long have you worked with this professional?
Are you satisfied with his or her services?
What are the professional’s strengths and weaknesses?
How often do you hear from your professional regarding your situation?
How quickly are your calls returned?
Would you recommend this professional to a relative?
Source: AARP.org