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The P’s of Evaluating a Financial Advisor
Posted By Ron On March 7, 2011 @ 4:35 AM In Investing,Money,Retirement | Comments Disabled
Too many people only use only one P when evaluating a financial advisor – Performance, more accurately past performance. That’s why most of them have disclaimers that past performance may not accurately reflect future results. As I’m in the throes of selecting a financial advisor (using WiserAdvisor ), I’ve thought of three more P’s that I should be using as well.
Don’t get me wrong, I will ask about an advisor’s track record, but that is just one factor in making an accurate evaluation of a financial planner . It may be that several non-performance factors are the key indicators of an investment advisor’s success and potential.
(As I go through the process of using WiserAdvisor  to help me select a financial planner, I’ll keep you posted.)
While different Investment styles come and go, an advisor’s consistency of philosophy and focus is an important component I’ll use to make my personal assessment. I’m looking for a financial advisor  with a long term commitment to a winning investment philosophy, not someone who chases the latest and greatest investment fad.
In a lot of cases, mediocre financial advisors have generated very impressive returns when their investment style is in popular … even over a longer term than you might think. But when that particular investing style falls out of favor, things can get ugly.
Remember what happened in the late 90’s with the huge growth investment craze? Unbelievable returns were generated by growth investors who failed to ask whether these returns were likely to continue in the future. They ignored common sense and when the market collapse began in early 2000, reality reared its ugly head.
By practice, I mean how does an advisor execute his or her philosophy? The main thing I’m looking for is: Does the financial advisor’s  practices indicate a willingness to risk someone else’s money? I don’t want someone who will deviate from a winning philosophy that isn’t currently producing big-time results in order to produce some short-term gains just to impress me. After all, I’m in this for the long term.
Who else will I be working with? Let’s face it: any advisor has a support staff and they can make or break the advisor and the firm. I want to know everyone I’ll be dealing with, who will answer my questions, who will oversee things when the advisor hands my account off. Who will decide if an employee needs to get more training or needs to be encouraged to work elsewhere?
What is the firm’s personnel turnover rate? I don’t want to hire a financial advisor  if he or she can’t keep a team together. Would you? How will you know if you don’t ask?
Some other considerations I need to clarify include:
There probably is no end to the questions I could ask, but these are a good start! What other questions should I ask?
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