{"id":734,"date":"2014-09-05T08:00:23","date_gmt":"2014-09-05T14:00:23","guid":{"rendered":"http:\/\/www.stevengblum.com\/site\/?p=734"},"modified":"2014-09-05T09:46:40","modified_gmt":"2014-09-05T15:46:40","slug":"use-this-script-to-chose-the-right-financial-advisor","status":"publish","type":"post","link":"https:\/\/www.stevengblum.com\/site\/articles\/use-this-script-to-chose-the-right-financial-advisor\/","title":{"rendered":"Use This Script To Chose The Right Financial Advisor"},"content":{"rendered":"

Lou Carlozo, \u00a0Money Under 30
\nAugust 1, 2014<\/p>\n

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Hooking up with a good financial advisor can be a lot like finding an ace mechanic: Wherever possible, you\u2019ll want to use word of mouth from trusted friends or family members to find someone who\u2019s ethical, honest and has the experience, if you will, to keep your fiscal engine humming.Yet it\u2019s not likely that most of us are going to poke around Herb\u2019s Garage looking for a seal of approval from the National Institute for Automotive Service Excellence. (Yes, there is such a thing.) Maybe that\u2019s understandable, because we all tend to judge a mechanic mostly on their track over the years with family cars.The same logic, in theory, can apply to taking on your parents\u2019 financial advisor, but there are some issues to contend with. In my case, for starters, my parents didn\u2019t have a financial advisor, nor investments, nor retirement accounts. I had no idea whom to go to, or what questions to ask.\u201cThe people on the other end of your investments have command of a great many tricks of the trade that are far beyond the knowledge of even very smart regular people,\u201d says\u00a0Steven G. Blum<\/a>. He\u2019s the author of a recently published book, \u201cNegotiating Your Investments: Use Proven Negotiation Methods to Enrich Your Financial Life<\/a>\u201d (Wiley).\u201cWe tend to place too much trust in our financial advisors,\u201d he adds. \u201cBut because they know a great deal that you don\u2019t, you are badly disadvantaged and very vulnerable to being manipulated.\u201dBecause Blum knows the turf much better than any of us, he provided Money Under 30 with a list of questions to ask a financial advisor up front. That might sound intimidating, but the key to remember is that the advisor works for you \u2014 and will control a significant portion of your money.<\/h3>\n

\u201cPeople are intimidated, do not know the right questions to ask, or fear appearing pushy or rude,\u201d Blum says. \u201cBut regretfully, it\u2019s very common that people do not question a financial advisor carefully or fully before engaging her or his services.\u201d<\/p>\n

He adds that for people 35 and under, this can be an especially difficult task: \u201cYounger adults have an added burden in that they have been brought up to be polite, respect older people, and honor authority. While these are good traits, they may create a reluctance to ask the hard questions and be skeptical about what\u2019s being said.\u201d<\/p>\n

Blum, aside form running his own firm, is also a celebrated teacher.\u00a0He\u2019s taught in the Department of Legal Studies and Business Ethics<\/a> at the University\u2019s of Pennsylvania\u2019s Wharton School of Business\u00a0since 1994, and has won the William G. Whitney Award for outstanding teaching at Wharton six times.<\/p>\n

The question Blum recommends you ask include the following:<\/p>\n

1. What credentials have you earned? What did you study in college? What college degrees did you earn? From which colleges?<\/strong><\/p>\n

This set of questions might sound smiler to something you\u2019ve encountered in a job interview. \u201cYou want an advisor who has deep understanding of the subject matter in question,\u201d he says. \u201cThis includes finance, economics, markets, and taxation. Regretfully, a great number of practitioners lack this knowledge. Look for a very solid educational background as a first step in determining whether an advisor really has the knowledge base to fulfill a \u2018duty of care.\u2019\u201d<\/p>\n

2. How do you incorporate tax strategy into how you make investment decisions for your clients? Name three books you have read that address investing and finance.<\/strong><\/p>\n

With this query, you might feel really uncomfortable, as though you\u2019re giving the advisor a grilling. \u201cBut tax planning is very important if you are to get guidance that is worth the maximum amount to you,\u201d Blum points out. \u201cIt can make the difference between successful investing and losing out.\u201d<\/p>\n

3. How are you regulated? What role do you personally play in complying with all regulatory requirements?<\/strong><\/p>\n

\u201cThere are several different regulatory regimes that govern financial advisor conduct,\u201d Blum says. \u201cSome are more effective than others. A good advisor should know how she is regulated and should play a role in making clients safe and well served.\u201d<\/p>\n

4. Can you pick stocks that consistently beat the market?<\/strong><\/p>\n

This is something of a trick question. \u201cIf they say yes, run! Economists know that this cannot be done on a consistent basis. A great many financial advisors, however, make their living by \u2018doing\u2019 this thing that economists teach cannot be done. How much do you want to spend on someone doing for you that which science knows cannot be done?\u201d<\/p>\n

5. How do you make money? How does your firm make money? What conflicts of interest exist and how do you navigate them?<\/strong><\/p>\n

\u201cIdeally, you want a firm whose only income is what the clients pay directly to them,\u201d Blum says. \u201cMany of us will be embarrassed to ask how much an advisor makes. It is, however, the essence of what you want to know: What do they do and for whom do they do it? This is an extremely highly compensated sector of our economy. You do not want to be financing their yachts.\u201d<\/p>\n

We began this column talking about cars, and in some corners of the financial advising world, it\u2019s a lot like selling used cars \u2014 so be on your guard. \u201cThe financial services industry has been studying how best to sell their products and advice for over a century,\u201d Blum cautions. \u201cThey train their people for advantage in selling and taking control of the conversation. Much like car dealerships, they arrange a structure and script for the conversation that makes independent inquiry by the customer quite difficult.\u201d<\/p>\n

In other words, don\u2019t be passive. Ask your potential advisor questions, lots of them, before you get you financial motor running.<\/p>\n

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