It's a Daunting Task, But One of the Most Important You Will Make

It's a well known fact that a large number of baby boomers have not adequately saved for their retirements. Roughly 89 percent of the 77 million people born between 1946 and 1964 are "not strongly convinced they will be able to live in comfort in their later years." [2022]Couple this with record low savings rates being paid and you see there is potentially a need for you to begin seeking alternatives to savings accounts, certificates of deposit, and money market accounts. You could attempt a "do-it-yourself" method of investing. Or, given the ever more complex world of investing, you could hire a financial advisor to guide you to a potentially more comfortable future.

Client Meeting

Since May 1, 1975 [2017]when fixed brokerage commissions went the way of the dinosaur, investors have been able to shop around and hire a financial advisor of their own choosing. Before turning your assets over to any financial advisor, there are 5 rules you should strongly consider following. While these rules will not guarantee investing success, they will point you in the right direction and hopefully make this difficult decision easier for you.

Rule # 1: Check Your Financial Advisor's Professional Background

The Financial Industry Regulatory Authority, or FINRA, has a great tool on their website ( called "Broker Check" that allows you to review any registered advisor or investment firm's professional history, including any regulatory issues they may have experienced as well as a wealth of other relevant information. 

When reviewing this data, it is important to note that a regulatory event on an investment advisor's record does not necessarily make him a "bad guy". Any written complaint against a broker that alleges a loss or damages in excess of $5,000 automatically triggers an event. This is the case whether the complaint is legitimate or completely frivolous. If your potential broker has an event on his record, ask him to explain the circumstances in detail and then decide what your comfort level is based on the situation.

Rule # 2: Ask the Financial Advisor About Their Accessibility

You will want to meet with your advisor periodically, perhaps quarterly or semi-annually, to review your accounts and any adjusts to your investing strategy. There will undoubtably be other times when you want to speak with them "on the fly", maybe to review an investment idea you heard about or to ask for a withdrawal to fund a vacation. Whatever the case, you want to know ahead of time what to expect. Find out if the broker works solo or is part of a team. Investment advisors frequently work as teams and each may specialize in a different aspect of planning. The advisor may also employ an assistant who may or may not be registered. It is a good idea to know what to expect when you call the office.

Rule # 3: Reflect On Your First Meeting With Your Prospective Investment Advisor

When you initially met with the financial advisor, who did most of the talking? Was it you or them?

A good advisor will be listening to what you have to say the majority of the time. In order for them to devise a comprehensive plan for you, they need to know a lot about you, your financial, and personal, situation. Some people will find these lines of questioning intrusive. The fact is without knowing as much about you as possible, the financial advisor will be unable to provide you with the best information for your individual situation. There is no "one size fits all" plan for investing. The advisor, if worth their salt, will work to discover your wants, needs, and goals for both the long and short term. If they do not do this, you should continue looking.

Rule # 4: Is the Advisor "Fee-Based" or Paid By Commission

Advisors are generally compensated for their advice by one of two ways: fee-based or commission. Without getting too detailed, a fee-based account pays a flat percentage of its assets on a periodic basis. For example, an account worth $100,000 might pay an annual fee of 1%, or $1,000 per year. In this type of account the only way the representative earns more money is if the value of your account increases. The down side to this is you are paying a fee regardless of your account's performance. One benefit to fee-based accounts is the value of no transaction fees to an active trader. As a matter of fact, if you are employing a long-term buy and hold strategy, your funds should probably not be in this type of account.

In a commission-based account, the advisor generally earns a commission on each new transaction. The potential problem with this is the inherent need for a broker to generate transactions in order to get paid. However, as noted above, your investment strategy will play a role in the type of account the financial advisor will suggest for your situation. Most times one of these types of accounts will make more sense than the other. You will want to make sure the broker is able to offer both types of accounts.

Rule # 5: What Is Your Comfort Level

The four rules mentioned above notwithstanding, selecting a financial advisor can boil down to this important concept. Is this investment representative someone you feel comfortable with? Do you feel strongly that you will be able to develop a solid professional relationship with this person? Or did you feel pressured, rushed, confused or generally uneasy. A good advisor will make you feel welcome and important. They will explain things clearly in an easy to understand way. They work for you and you should get the feeling they are willing to work with you also.

Your financial future is an important one. Taking the time to speak with different financial advisors and following these 5 rules for choosing one will hopefully make that future a comfortable and enjoyable one as well.