Selecting the right financial advisor is serious business

Choosing the correct financial advisor is a tall order for any investor.

A misstep can mean the difference between reaching your financial goals and falling short. For business owners, the stakes are even higher.

Business owners bring unique issues to the table, the main one being that most of their net worth is tied up in their businesses. This presents a fairly complex situation for planning purposes.

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The business owner's primary asset, the business itself, presents the biggest risk to the owner as well as the biggest potential reward. If the business fails, the owner typically finds himself well off track, if not financially ruined. If it succeeds, most other goals, from retirement planning to education funding, tend to resolve themselves quite nicely.

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This is why it's essential that business owners create a proper game plan to find the right financial professional and to align themselves with someone who understands their specific needs.

So if you are a business owner, how do you find the right financial advisor?

First, document your situation and needs.

"I am still amazed at how many owners of businesses both large and small seek financial advice from their golf buddies or family members with no business experience or financial know-how."

That means asking yourself the right questions: Are you looking to remain a sole proprietor, or do you want partners? Do you run a small operation with a few employees, or are there dozens or even hundreds of employees? What type of entity is your business: a C corporation, S corporation, partnership, an LLC or one of a myriad other options?

What phase is your business in? Are you getting ready to open your doors and need advice with formation, or do you need help taking a small business to the next level? Are you looking for advice in regard to employee compensation? Are you looking at ways to retain important talent or creating a succession plan?

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Once you have an idea of where you are today and where you see your business in the future, you should determine the right group of advisors to interview to help you manage your finances.

It may seem obvious, but it's not. The goal is to find an advisor accustomed to working specifically with a business owner.

I am still amazed at how many owners of businesses both large and small seek financial advice from their golf buddies or family members with no business experience or financial know-how.

This is serious business and requires a dedicated financial professional to help you manage and grow your business. As a business owner, you have most likely spent a majority of your adult life working and developing your business. The least you can do is spend a few hours working your way to find the right financial advisor to help guide you. I truly believe the same dedication you put into your work life should be used to make this big decision.

When looking to hire an advisor, make sure they have experience working with business owners. Ask them the tough questions to make sure they have the credentials to handle the decisions you will face as a business owner.

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For example, the advisors you interview need to be able to help with a business succession plan that involves understanding where the business falls into the overall financial picture, tax strategy, legal planning and sometimes insurance planning.

The advisor should be able to work with you if you are contemplating retaining talent with a deferred compensation plan, phantom stock plan, restricted shares or options. All of these tools have financial, legal and tax implications.

Feel free to set the bar high. Someone qualified to handle complex business-ownership planning should also have an internal team or connections that includes, at a minimum, a certified financial planner, an attorney and a certified public accountant.

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You can start your search with referrals from other business owners you know and trust. Additionally, search industry websites for experienced financial professionals. Some resources include the Financial Planning Association and the National Association of Personal Financial Advisors. Make sure you cross-check your list of potential advisors with your own set of criteria.

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Once you have developed a shortlist of candidates, you should conduct telephone or in-person interviews with each advisor. Here are 10 key questions you should ask:

  1. Can you tell me about your experience with (small- and large-) business owners?
  2. What type of business owners do you work with?
  3. Are you an independent advisor or broker?
  4. How do you get compensation? Fees, commission, hourly rates?
  5. Do you sell any proprietary investment products?
  6. Are you able to offer advice on legal and tax issues?
  7. If so, are you able to carry out recommendations, or will you coordinate with my own legal and tax advisors?
  8. What are your professional credentials and designations? What is your education background, and what licenses do you have?
  9. Will I work with you or your team or a combination?
  10. Can you offer some referrals from current clients?

Once you get your list down to two or three advisors, it's very important to interview the finalists in person. If you meet someone you just don't connect with, move on.

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By taking your time, you will eventually find an advisor who meets your specific needs. In short, you will have found an experienced financial advisor who is well positioned to advise you on the financial needs of your business.

—By Peter Mallouk, special to Mallouk is a certified financial planner and president of Creative Planning, which was ranked as CNBC's top fee-only wealth management firm.