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Picking a Financial Advisor Later in Life

Jan. 25, 2013
Personal Finance
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If you’re a senior citizen without a financial advisor – or you feel as if you need a better one—take heart! It’s late, but it’s not too late. There’s a lot you can do right now to get your situation in hand.

Our unique concerns

As Dorethia R. Conner, president of Conner Financial Coaching, says, “Seniors should see a financial advisor who understands their needs at this point in their life . . . an advisor who is patient and thorough in explaining all their options and doesn’t expect clients to simply ‘take their word for it.’ Seniors have unique concerns – some may want to assist in paying for a grandchild’s education or help a relative buy a home down the line, in addition to living comfortably in their retirement years. More often than not, many want to be prepared for current or future healthcare issues and need to invest in a manner that will keep them financially secure. It’s important that the financial advisor fully understand these concerns and be able to provide investment strategies that will help them reach their goals.”

Finding an advisor like the one Conner describes takes a bit of poking around. But don’t worry: you don’t need a degree in economics for this. Your work is on the human-nature end of things, finding someone who you’ll be comfortable with – someone you can trust. Your job when you find them is to tell them what you want for your future; theirs is to help you get there.

Avoiding the obvious

It’s easier to tell you how to avoid a questionable advisor than how to find a good one. For starters, don’t pick one out of the phone book, and don’t respond to an ad in the paper. Set aside any mailings you may have received, and don’t get sucked in to presentations that involve a free lunch. Those lunches are high-pressure situations that generally involve a particular financial product, and they share one fatal flaw with all these other options: no one you know can vouch for the advisors. A personal referral isn’t necessary in every case – but you should never let yourself be swayed by a slick advertisement.

Separating the good from the bad

Ask your friends, your acquaintances, or people at your church about their advisors: Are they easy to reach? Do they explain things fully? How conversant do they seem to be with senior issues such as Social Security, pensions, and retirement accounts? Is their advice bearing fruit, or have your friends been hearing a lot of excuses lately?

It’s surprisingly easy to find out more about someone you might like. Richard Sabo, a financial planner and fraud consultant in Pittsburgh PA, says, “A good starting place for anyone is the Financial Industry Regulatory Authority (FINRA) website which helps and educates investors. There is a broker-check link that let’s you put in any broker’s name and get a full report on them.  It shows employment history (have they jumped around a lot – and why?), licenses they hold and what products they can sell (many life insurance agents now call themselves Financial Planners but if they’re not in that system, they only have a license to sell life insurance and annuity contracts), history of complaints/lawsuits/arbitration against them (details, amount of money, outcome), tax liens and bankruptcies (do you want to do business with someone who can’t handle his own finances?) and criminal history/charges/convictions.” ING Retirement Coach Barbara Taylor echoes these cautions and adds another that no senior should ignore: “Be wary of anyone who suggests that you take a mortgage on a fully-paid home and invest the proceeds, or encourages a reverse mortgage.” We’ve discussed reverse mortgages and annuities here before; they’ve helped a few seniors lose both their savings and their homes.

Some important questions

There are also a few basic questions that will help separate the wheat from the chaff:

  • Is the advisor a Registered Investment Advisor? Of all the titles floating around out there, this one equates to another, very important term: “a fiduciary.” As Donald B. Cummings, Jr., of Blue Haven Capital in Geneva, Illinois, explains, being a fiduciary “ensures that the advisor is legally required to put the client’s interests first at all times. It also dramatically increases the odds that the client will spend less on services received – and because services cost less, the client’s returns should be better.”
  • Who will be the custodian of my securities? The correct answer should involve a third party custodial firm, which will keep your investments safe and send you regular statements independent of any your advisor may provide. As Cummings points out, “Bernard Madoff was able to rip people off because he was both advisor AND custodian.”
  • Does the advisor earn a commission on what he recommends? Porter L. “Buddy” Ozanne of Probity Advisors, Inc. in Dallas, Texas advises looking for “someone whose primary income is not derived from commissions-related sales of products. . . Seniors should look for someone who earns their fees from selling their advice, not from selling a specific product.”

When you find an advisor you like, ask him or her for references. Amy Rose Herrick, an Investment Adviser Representative in Virginia, suggests asking for “a new client they have helped in the last three months, one over a year and one for a long period of time such as five years or more. Talk to them!  And ask the advisor how many times they’ve moved offices, residences or brokerage firms in the last ten years – and why.”

The final cut

Use our recommendations to find at least three advisors that you feel comfortable with. Sit down with them, answer their questions, and get their preliminary recommendations in writing. Review the paperwork at home at your leisure – hopefully with someone you trust. If you’ve done your homework and found someone you feel you feel comfortable with, you’ve made a big step toward financial independence.

Financial advisor image via Shutterstock