Without proper information and/or experience it can be quite difficult in locating a financial adviser who is both competent and trustworthy. Especially if you live in a large metropolitan area, there is no lack of choices. So how to choose a financial adviser is extremely important to our financial future.
I will present a few key points to consider as well as providing a few links to resources which may be helpful.
What is a Financial Adviser or Planner Anyway?
These folks specialize in guiding people in how to handle their money. This includes advice on investing, growing, and saving your earnings. Some advisers specialize, while others take a more general approach to financial planning.
For example, if your current primary concern is retirement you can find an adviser who specializes in estate planning and retirement strategies. If you are looking to make a large purchase such as real estate, you can locate someone who has such an emphasis in their work.
Financial advisers or planners are different from insurance agents, mutual fund sales people, accountants, and stockbrokers.
Types of Advisers
Even though anyone can claim to be a financial planner, there are those who spend the time to educate themselves and gain some credibility. For example, a Certified Financial Planner (CFP) has passed an exam about the details of personal finance and has also committed to continuing education. Even with this designation they may still lack credibility and expertise. It is advisable to interview several CFPs and ask people for referrals.
Financial planners either charge an hourly or flat fee or earn commissions on products sold such as annuities and mutual funds. Some planners may steer you in the direction of the highest commissions rather than what is in your best interest.
A good resource to locate Certified Financial Planners is the National Association of Personal Financial Advisors (NAPFA) which only list fee-only advisers (no commissions from fund companies or life insurers). In many ways the standards set by NAPFA even surpass the CFP credential requirements.
The Garrett Planning Network provides advice for an hourly fee on smaller projects so they are less expensive to use. This group is composed of Certified Financial Planners (CFPs) or those working toward that designation. This is a helpful source to get some questions answered without paying a lot.
Another type of financial adviser is a Fiduciary. This is a person who by law has pledged to have your best interest in mind when advising strategies and investment products. Other advisers are held to the “sustainability standard” which is much less strict. In other words, any product recommended just needs to be in the ballpark as suitable for you, and not necessarily in your best interest.
Ways to Implement Due Diligence
Since this is such a vital choice for people, it is extremely important to do thorough due diligence on any person you are considering to hire as a financial adviser. Here are a few ideas.
For any Certified Financial Planner you can verify that their credentials are legit and up-to-date by going to the CFP Board. You can also call the administrator of any designation as well to verify validity.
Ask for references from current clients. You can also ask the adviser directly if they ever have been investigated by any investment-industry group or regulatory body, regardless of the verdict. Also ask if they have ever been convicted of a crime.
Look for Red Flags. If a person is bragging about investment gains from certain investment products, or they are making any sort of guarantees to be able to beat the market average, walk away.
You want someone who gives you good advice across a broad range of issues and not just investments. I always prefer someone who takes a more conservative approach, and is more interested in preserving my portfolio through both good and bad times.
Education is Key
Take your time and educate yourself in some of these areas so that you will be confident when speaking to potential advisers. There are many sources of good financial information both online and offline.
You want to be able to question any potential financial planner or adviser thoroughly as to their competency in order to reach your financial goals, while at the same time preserving your current wealth. You want an adviser who is interested in your risk level, what your time table is to reach your goals, and one who is capable of achieving this for you.
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To your Investment Success,