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Shopping for Investment Advice


By Suze Orman

When you choose your place of worship, you go to a place that fits your beliefs. You find your doctor through others who have been there. You have even decided on a favorite supermarket because it has the best quality and prices. How do you know these things? Comparison shopping. You've checked them out, or others have recommended them. So why would you select someone you know nothing about to invest your money?
If you take the time to prepare for the interview process in advance, it will be well worth the effort.

Both you and your spouse or significant other should address the following issues:

1. Clarify your goals before you see an advisor. Do you want to travel? Sell your house and buy a mobile home? Maybe you want to play golf every day or stay home with your hobbies. Write down all your goals, both immediate and future.

2. What is your emotional attitude toward your money? Imagine yourself investing part of your retirement fund in stocks. Let's say the stocks you invested in are moving downward. Do you:
a. Anxiously check the newspaper every day for stock values? Does the decline cause you to loose sleep?
b. Understand that this was a risk you decided to take and you accept the consequences?
It is your job to know the answers to these two questions. It will be your advisor's job to tell you whether you can meet your retirement goals.

3. Before starting the interviews, become knowledgeable of current interest rates from banks, CDs, money-market funds, and the current five-year CD rate. You will want to write this information down and take it with you to the interviews for comparison.

4. How do you find a financial advisor? You can ask friends or relatives whose opinions you respect if they know of and can recommend one. Or call the human resources department where you worked and ask if they have the name of an advisor whom other retirees use and are happy with.
The following organizations can also provide names:
The Institute of Certified Financial Planners, 800-282-7526.
Investment Counsel Association of America, 202-293-4222.
You can also call brokerage firms and interview brokers with the guidelines provided.

5. If you call a brokerage firm you have selected on your own, make sure the firm you deal with is a member of the National Association of Securities Dealers (NASD), 212-858-4000, as well as the Securities Investor Protection Corporation (SICP). Tell them you are retired and want an advisor who has been in the industry at least ten years and specializes in retirement planning. Do not just walk into a brokerage firm and ask for a broker. If you do, you may be assigned to the new kid on the block with little or no experience.

6. You will need to bring the following financial information to the interview: recent tax returns, Social Security estimates, an idea of monthly expenses, and any sources of present and future income with accompanying statements that show where your money is located.
If you do not know your Social Security estimate, call 800-772-1213 and ask for the questionnaire "Personal Earnings and Benefit Estimate Statement." It will take four to six weeks to receive your estimate after you return your questionnaire.
Now you are prepared to go out and interview financial advisors. These interviews should be at no cost to you.

Interview at least one person at three different firms, including any of the recommendations you received. Apply these guidelines at each interview. Even personal recommendations need to meet the following standards.

1. If you are a couple, both partners should be present for the interview. It is important that both individuals feel comfortable with the advisor ultimately selected. This is especially important for women, since statistics reveal they generally outlive their male counterparts.

2. Check whether the advisor has a title after his or her name. If you use someone from a major brokerage firm, the titles, in ascending order of importance‹associate vice president, investments; vice president, investments; senior vice president, investments; or first vice president, investments‹indicate the advisor's earning power and how long he or she has been in the business. Titles such as account executive, financial advisor, or financial consultant/planner indicate the new kids on the block and show that a certain production level has not yet been achieved for the firm. Look for at least an associate vice president, investments, credential.

3. Is he or she a certified financial planner? This indicates two years of study, extensive tests, and a minimum of thirty hours of continuing education each year to keep up to date. This designation is highly desirable.

4. Ask how long he or she has been with this firm. It should be a minimum of four to five years. If not, ask how many prior companies the person has worked for. Look for an answer of no more than two. Then ask how long he or she stayed at each. An answer of no less than five years at the most recent firm is preferable. This is a powerful clue to stability. If the person has been at many firms for brief durations, it is probably best to find someone else.

5. Meet the financial advisor in his or her office. Observe the surroundings. Is the person organized? Take note of personal appearance.

6. The financial advisor should ask about your goals during the interview process. If they don't ask, they may care more about what they can get from you (commissions) than what they can do for you (investments).

7. Ask the advisors you are interviewing how they make their money. There are three ways a broker/financial advisor makes money. Fee-only financial planners can charge dearly for an original plan. However, they are generally more impartial and likely to give better advice. Fee-plus-commission-basis planners charge a small up-front fee for the plan and receive commissions on the investments made. A commission-only advisor makes money only when he or she sells or buys on your account.
You can ask if there is a discount commission available from the firm. Sometimes they are willing to discount, especially for large quantities of stock.

8. A popular alternative is the registered investment advisor (RIA) who receives a fixed percentage of the portfolio as their fee. This can be 1/4 percent to 2 percent of the amount of money they have under management for you. Fees should be paid on a quarterly basis and are not to be taken up front.

9. The interview process may take one or two meetings, including a presentation of a portfolio for you. Compare the return the advisor says he or she can make for you with the rates of the five-year CD. Is there a difference? If not, you may be better off investing in a five-year CD yourself-no risk, no commissions. If it is more than 4 percent higher, you need to question the safety of the investments being offered. Ask the advisor what the chances are of losing any of your investment. If you don't feel comfortable with the answers, this is not the advisor for you.

10. Now you must verify all the information the advisor, broker, or financial planner gives you for accuracy and for disciplinary actions or criminal investigations. To obtain verification, write to:
NASD/Public Disclosure Program, P.O. Box 9401, Gaithersburg, MD 20898; 301-590-6500. Two free background checks are available every three months. Otherwise it is $20 for each additional search.

11. Always read documents in their entirety before signing them. Don't be rushed. Take the documents home to read. Jot down points that need clarification and ask questions about anything you don't understand.

From You've Earned It, Don't Lose It, by Suze Orman. 1994 Suze Orman. Excerpted by arrangement with Newmarket Press. $23. Available in local bookstores, or call 800-733-3000 or click here. Also available, The 9 Steps to Financial Freedom: Practical & Spiritual Steps So You Can Stop Worrying, 1997 by Suze Orman. $23. Available in local bookstores, or call 800-733-3000 or click here.