The following post is by Tanya Oliver. Enjoy!
There are a lot of areas in life where a DIY approach can save you money, but investing isn’t one of them. Unless you’re extremely financially skilled, you’re going to need professional advice to make the right investment decisions. And that means hiring a financial planner.
But where can you find the right financial planner for you? What questions should you ask to determine that a particular planner has the experience and integrity you’re looking for? Should you choose a planner who charges an annual fee, an hourly rate or a commission? The answers will vary somewhat depending on your financial position.
Where to Look for a Financial Planner
Often, the best way to find a financial planner who’s right for you and your financial place in life is to ask around. Your friends and co-workers, especially those who are in the same financial boat as you, may be able to give you a good referral to a financial planner who can help you get from where you are now to where you want to be in 20, 30 or 40 years. Whether you’re single or have kids, just starting out in the work force or several years into your career, choose a friend who’s in the same place in life and ask him or her to recommend a financial planner.
Alternatively, you could go online to look for financial advisors. Some good places to look are with the National Association of Personal Financial Advisors. Look for an advisor who is willing to meet you on your level and stick with you over the years.
Is Your Financial Advisor Reputable?
When it comes to searching for a financial advisor, don’t be afraid to shop around. Advisors know that you’re probably vetting several candidates, so they won’t be offended. Shopping around offers advantages — it allows you to find the most affordable financial planner, for a start. It also gives you the chance to find a financial planner with the qualifications and experience you’re looking for.
To avoid getting taken in by an amateur financial planner, look for a professional with the letters “CFP” after his or her name. CFP stands for Certified Financial Planner, and in order to get this credential, a planner needs to have passed a certification exam from the Certified Financial Planner Board of Standards. CFPs must maintain their certification with continuing education on ethics and other matters of personal finance.
While certification is important, it’s not all there is to it. Some important questions to ask a potential financial advisor include:
- Do you have staff committed to watching the markets?
- How do you apply current academic thought on the science of investing to your financial planning services?
- How do you ensure due diligence?
Run a background check on your financial advisor to make sure he or she hasn’t been convicted of a crime. Go here to learn if a CFP has ever been disciplined. Ask for and check references from current clients who are in the same financial position as you.
Should You Choose a Fiduciary or Suitability Advisor?
There are two basic compliance standards that financial planners adhere to — the fiduciary standard and the suitability standard. Fiduciary advisors have a commitment to giving you advice that’s in your best interests, and many people feel more comfortable with such a planner, even though they can cost more.
A suitability planner has a legal obligation to give you advice that’s suitable to you and your situation, even though it might not be your best option. However, don’t take that to mean that a suitability planner will definitely lead you astray. He or she wants to retain your business as much as any other professional.
Understanding Financial Advisory Fees
There are three basic pay structures for financial advisory services. You’ll pay a commission, pay an annual fee or pay by the hour. The one that’s best for you will depend on your financial position.
If you’re on the lower end of the income scale, or just want to get a few questions answered on a one-time basis, an advisor who charges by the hour may be for you. On the other hand, if you want ongoing financial planning and advice, you’ll probably want to go with a fee-based planner who will take a small cut of your assets — usually around one percent — in return for managing all of them. If you have a lot of assets, however, you may want to work with an advisor who is paid on commission.
Without professional financial advice, you could end up making money mistakes that could devastate your financial potential. Finding the right financial planner for you may take some legwork, but in the end, it’s well worth it.
