Picking the Wrong Financial Advisor Can Leave You Fleeced

NEW YORK (MainStreet) - You might know you should invest to grow your wealth; knowing how to invest is a whole different question. So when it comes to planning your financial future, it might be best to hire someone else to take care of your affairs for you. Given recent scandals in the financial sector, how do you know that you're getting a financial advisor who's on your level and who has your best interests at heart? Once you find a trustworthy advisor, how do you know that he's going to handle your money the right way?

The Beer Test

Bijan Golkar, CFP and CEO of FPC Investment Advisory, says that while there are other concerns in play, consumers should put their advisors to the beer test.

"Is this someone I could sit down and have a beer or a cup of coffee with?" he says.

It might sound trifling, but it's not. Golkar points out that you're going to be discussing a number of intimate personal issues with whomever you hire. Golkar is quick to point out that "trust isn't going to happen overnight." However, he also states that "you should at least feel like you're bonding enough right away to go out and have a drink with them."

Do They Have a Series 7?

Elle Kaplan, CEO and founding partner of female-owned asset management firm LexION Capital Management, urges consumers to ask one simple question: "Do you have a Series 7?" She further encourages you to avoid anyone answering in the affirmative.

"Chances are this advisor will not have your best interests at heart," she says. This is because Series 7 brokers tend to work on commission. As such, they're more salesmen than they are stewards of your finances. "They'll push certain products on you, even if they're not the best for you, because they're going to net the highest products," she says.

The Legal Burden

One problem with the Series 7 broker gets at a deeper guide on how you can pick a financial advisor; Kaplan points out that the legal standard for a Series 7 broker is "suitability." A higher standard is held for Series 65 Licensed advisors -- the fiduciary standard. "This means they always sit on the same side of the table as their clients," explains Kaplan. Her firm operates on a fee basis and is held to the fiduciary standard. "We don't peddle anything to our clients, we just pick the best possible investment opportunities for each and every client we serve."

Kaplan compares a Series 7 to a pharmaceutical company representative, whereas a Series 65 is more like a doctor. Golkar concurs that it's better to go with a fee-only firm. In fact, his firm also does business on a fee-only business. "We don't sell products," he says. "We're like a guidance counselor for your finances or a personal CFO."

Is The Technology a Fit?

"We work with a lot of younger people," says Golkar.

As such, he's got a lot of clients who want the latest and greatest technologies.

"Believe it or not, there are still some advisors who only do snail mail and fax," he says. More digital firms tend to not be as consistent with meetings, whereas fewer digital firms are more about in-person meetings. And, Golkar points out, there are firms that offer both. Still, make sure that both the technology and the personalities are a fit.

"I've seen people go with a huge firm and get mad that they can't get the time of day," he said.

What About the Philosophy?

Finally, it's worth discussing your approach and basic viewpoint toward investing.

"Some people want a lot of fancy products," says Golkar. "Then there are more vanilla advisors who are the tortoise versus the hare." He points out that while the latter won't give you a lot to brag about at cocktail parties, it will give you solid investments.

"If someone wants a lot of bells and whistles we tend to tell them right off the bat that it's just not going to be a fit," he said.

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