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Finding the Right Financial Advisor Is Important

One of the most common requests I receive is: "What can I read to learn about investing?" Although there is a seemingly infinite variety of self-help investment bibles, esteemed newsletters and online sites that promise to reveal the great secrets of Wall Street, I think folks would be far better served by reading Warren Buffett's annual letters to his Berkshire Hathaway shareholders. His guidance is straightforward and brilliant.

Investing is not for the faint of heart. For one thing, the sheer volume of available information is overwhelming. The irony, however, is that the key issues are few and usually easy enough to uncover. A simple example can be found in the domestic auto industry's woes of the early 1980s. That was a time when Japanese auto makers were taking huge chunks of market share from the Big Three in Detroit. What was the problem? GM, Ford and Chrysler were making junky cars that drank fuel faster than it could be pumped into their tanks. They were bloated vehicles that spent more time being repaired than on the road.

The dot.com fantasy of 1999-2000 was no more complicated. New economy stocks with no earnings soared to hundreds of dollars per share while the investing public was temporarily brainwashed by the advice that the old rules no longer meant anything. Guess what? They did. They do now. And they will in the future.

Emotions Can Affect Investment Decisions

There's more. Even if you can manage to bone up on the fundamentals and understand the basics of what makes a good investment and how to diversify your holdings, there's still another concern: emotion. When you have to pull the trigger on a buy or sell, emotions often get in the way. There's a lingering fear that it's too late to buy, too late to sell or maybe I made a mistake in my thinking. (For more from this author, see: The Truth About Stock Market Highs and Lows.)

However these kinds of feelings develop, they can be a problem. Which is why most people seek the assistance of a financial advisor, at least as a sounding board and perhaps as the one who is steering the ship. The task of finding a competent and worthy financial advisor is not without risk. Quite often, people looking for advisors will ask their attorneys, accountants or friends for recommendations. Knowing that someone else has had a good experience can have a calming effect. (For related reading, see: How to Find a Financial Advisor/Planner.)

That doesn't always work out. Not long ago, I had a client who selected an advisor who had served in the same branch of service as her late husband. That was the extent of her due diligence. Unfortunately, the "advisor" turned out to be a charlatan who ended up on the wrong end of her lawsuit.

Finding the Right Financial Advisor Can Help

Those who are looking for advisors will be best served by those who are fiduciaries, those who are required to put the client's best interest first. That's often not the case with stockbrokers, who are held to a standard of suitability, a standard that offers minimal protection to the investor. Far better to look for a registered investment advisor who is also a certified financial planner. These advisors are fiduciaries, not salesman. (For related reading from this author, see: Why Investors Need Advisors Who Are Fiduciaries.)

For a list of prospective advisors, go to www.findanadvisor.napfa.org. By specifying where you live, you will be presented with a list of nearby advisors. Call a few, meet a few and decide on someone you're comfortable with. Also check out advisors at https://brokercheck.finra.org/. All you need is a name and location to do a search. Once you locate an advisor, make sure to read Part II of Form ADV, which is the disclosure document advisors are required to provide to you. In this document, advisors must disclose any disciplinary events. If you find any, go elsewhere.

When you make the effort to find a proper advisor, the rewards from doing so will more than compensate for the fees involved. When you don't, the following quote may be worth thinking about:

“When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.”   Warren Buffett

(For more from this author, see: Investors: Don't Let Fees Reduce Your Returns.)