Part 22 (1/2)
Choosing a Financial Adviser, 1-2-3
1 Interview three fee-only planners
2 Ask questions and listen to your gut
3 Never agree to an investment you don't understand
The title ”financial adviser” is not regulated No government body dictates who can call themselves one So, anybody can print up business cards and call himself or herself a financial adviser It's up to you to weed out bad advisers froood To do that, you'll need to know the insider secrets of the financial planning industry
The first thing to know is that you shouldn't abdicate responsibility and turn over your financial life to so a financial adviser is not like hiring a lawn service to cut your grass In that case, you're hiring the lawn service to perform a specific task so you don't have to A financial adviser should be different It's like asking a landscaper for advice on how best to cut your grass He side But ultiate around the yard And you'll have to live with the result
So, hiring an adviser should be a partnershi+p or coaching relationshi+p, rather than work-for-hire A good adviser will help identify probleies, and provide objective opinions
1 Interview Three Fee-Only Planners
The biggest problem with most financial advisers is they have divided loyalties On one hand, they et you the best returns on investoals, which are to keep their job, feed their own fas us to this unfortunate fact: Financial advisers make more money if they put you in bad investet commissions-call them kickbacks, if you like-from the investment companies where they put your est kickbacks Advisers at insurers and brokerages ood and decent people, but their first and foremost job is to sell you financial products
A sie for office visits but is paid by drug co you pills Any chance his prescription pad would be a little busier, whether you really needed drugs or not?
The solution? Use a fee-only planner
A fee-only planner is paid only by you, not financial companies Beware that the term ”fee-based” is entirely different That means the adviser is compensated by both fees and coe by the hour or by a percentage of your assets that the adviser es Ideally, you would pay for advice and implement the recoe yourto 1 percent of your assets is reasonable, while 25 percent is too ht tools-our good friends, no-load index funds
Two good online sources for finding fee-only planners are NAPFAorg and GarrettPlanningNetworkcom Each of these Web sites has a ”find-a-planner” option to help you locate an adviser near you
This is iood commission-based financial advisers that would do a fantastic job for you I just think the built-in conflict of interest is too important to overlook Conversely, just because an adviser is fee-only doesn't ood
Once you have a short list of fee-only advisers, schedule an in-person interviehich should be free of charge That , but it's hile Come prepared with your financial information, such as how much income you have and all your investment balances
As you set out to choose an adviser, think about what specific help you need Do you feel helpless in choosing mutual funds? Don't knohat to do with stock options you received at work? Are you worried you don't have the right insurances or financial docu will, andan inheritance? Do you want a comprehensive plan to cover all aspects of yourup the interview, make sure the planner hasn't been in trouble Find out about disciplinary actions by going to the US Securities and Exchange Co 1-800-SEC-0330 Look for a link like ”Check Out Brokers & Advisers” You can also contact your state agency that oversees investment advisers For advisers who sell investments, otherwise known as stockbrokers, you can conduct a BrokerCheck at the FINRA Web site, brokercheckfinraorg, or call 1-800-289-9999
2 Ask Questions and Listen to Your Gut
Choosing the right adviser breaks down into three basic tasks: assessing the adviser's technical competence, trustworthiness, and compatibility with you Here are six questions that will help you judge an adviser, whether they are fee-only or not:How are you paid? This ht be an uncomfortable question to ask But it is funda a fee-only planner, the answers should be straightforward Ask the planner for his or her Form ADV, a document that describes the fee structure
What are your qualifications? Choose a planner who has been in the business for several years and has a certification, such as Certified Financial Planner or CFP (See sidebar for other certifications) Ask about work history
ABCs of Financial Certifications
The financial services industry has an alphabet soup of acronyms that represent certifications for financial advisers Unfortunately, none assures you of a conations are awarded by private organizations that don't answer to governnation after an adviser's nanals he or she probably passed a test of basic financial concepts and is staying current on changes The following are a few of the ful certifications:CFP: Certified Financial Planner A certifications, CFPsexperience or a bachelor's degree plus three years of financial planning experience They ram, pass a 10-hour co education every two years, and adhere to ethics standards
ChFC: Chartered Financial Consultant ChFCs must complete three more courses than the CFPs but only have to pass individual topic exams, not a comprehensive exam They must have three years of experience in the financial services industry and adhere to ethical standards Theyeducation every two years
CFA: Chartered Financial analyst A designation geared ement than broader areas of personal finance CFAseconoement, securities analysis, and ethics, and have approved work experience
CPA-PFS: Certified Public Accountant-Personal Financial Specialist The PFS designation is awarded to CPAs who have abusiness experience, co education within the last five years, passed an exam, and adhere to a code of ethics
For brief infor and click ”Investor Infornations”
What is your financial planning philosophy? Here, you're fishi+ng for a co process and not about hot stocks or unusual investments If a prospective financial adviser says he or she can beat thenobody can predict market movements The adviser is either a fool or a liar, and probably a cheat A good financial adviser will make sure you're well-diversified, so you can limit risk and maximize returns
As the adviser explains his or her philosophy, ask yourself: Are you being coached or sold to? And get a feel for how rushed the adviser is If he or she doesn't have tiht not have time for you after you become one Finally, note the words and tone the adviser uses Is he or she speaking in financial jargon, knowing you won't understand? It actually takes greater skill and knowledge to explain things si or supportive?
What services do you offer? If you need a broad spectrum of advice, , invest This is the time to ask whether the adviser will be the only person you deal with, or whether you'll be shuffled off to a junior associate And ask about how the adviser will communicate, by e-ular reports and periodic reviews about your financial status?
Tell me about your typical client You want an adviser accusto with people like you If the adviser typically works with multimillionaires and you have total assets of 100,000, how et? You should also ask for a sample financial plan for a client in similar circumstances to yours-with the client's name removed, of course
Can I contact referrals? Granted, an adviser is only going to refer you to his happy clients Ask the client, ”If you had to do it again, would you pick this planner?” and ”What is the downside of working with this planner?”
You want to gather factual inforut, too That doesn't e whether you like the adviser as a person or whether you hit it off in idle chitchat That's irrelevant This is a business relationshi+p, not a personal one