11/27/2012 2:45 PM ET|
How to pick a financial adviser
If you want guidance from a professional but don’t know how to find someone who can meet your needs, this checklist can help.
Choosing an adviser could be the most important financial decision you make in your lifetime. The adviser you choose may mean the difference between financial freedom or paying wasted fees and, in some cases, becoming a victim of fraud.
With so many candidates from which to choose, you need to learn some of the industry jargon, understand the options and define your needs -- much as you would with any other professional service.
Here are 10 things the Securities and Exchange Commission, as well as many financial planners, says you should know.
No. 1: They're not all pros
Anyone can call himself a financial planner, but that doesn't mean the person is an expert investment adviser. So look for experience and credentials.
Check out the person's background and designations at the SEC and Financial Industry Regulatory Authority websites. At the very least, you probably want a certified financial planner, someone who has passed rigorous standardized exams on managing personal finances.
No. 2: An investment adviser may not be a financial planner
Most financial planners are also investment advisers, but not all of them. They may be able to recommend some or all of the range of products out there: stocks, bonds, mutual funds and exchange-traded funds. They may not, however, be able to assist you in other aspects of financial planning: insurance, taxes, retirement and estate planning.
Either is fine, depending upon your needs. Find out the professional's limitations, if any. If you're just starting out or you're not a "do-it-yourselfer," a financial adviser who can offer you all types of services and products, as well as a comprehensive financial plan, may be the way to go.
No. 3: Meet the prospective adviser in person
Meet the person face to face. You should be able to feel confident that your adviser is trustworthy and that your personalities match. In times of financial insecurity, this will be the person you will turn to. If you don't feel comfortable after meeting with the adviser, keep looking.
No. 4: Look for a clean track record
You want an adviser with a clean history. If your prospective planner has received complaints, you should know about them. Obtain a copy of the person's Form ADV Part I from the SEC website. This document contains information about whether the adviser has had problems with regulators or clients.
No. 5: An adviser should act in your best interests
Make sure your financial adviser has pledged to act in clients' best interests at all times. This is called "fiduciary duty." (Brokers are held to a lesser standard, though they have to sell you "suitable" investment products.) You are looking for fiduciaries who have pledged to be part of the financial planning honor system.
No. 6: Ask for -- and check -- references
Ask for the names of three other financial professionals with whom the adviser has worked. You might be able to learn more about the adviser's abilities and strategies from them. Also ask whether these individuals get a referral fee from the adviser.
You can also ask your adviser about speaking to other clients, but privacy laws severely limit how much information can be shared. Still, it is worth asking about the number of clients and money under management, and if a single adviser or team will provide all services and oversight.
No. 7: Understand how your adviser gets paid
Is it an hourly rate, a flat fee or a commission on the value of assets that advisers manage for you or on the securities they sell? Ask for a copy of their Form ADV Part II (or get it from the SEC); it outlines an adviser's services, fees and strategies. This is the fine print they may not bring to your attention immediately, but you should certainly ask about it.
No. 8: Know what services are offered
Some advisers assess every aspect of your financial life, such as savings, investments, insurance, taxes, retirement and estate planning. Others focus on a single objective. Outline the services you need, and find out what you will be paying for. An all-of-the-above approach may not work for you if you want advice on, say, just taxes.
No. 9: Ask about the investment strategy
Is the adviser a stock picker, a manager of managers (private funds and mutual funds) or frequent trader? Does the adviser favor buy-and-hold or an active management strategy?
You may not know how to pick the right investment, but you should understand how the investments will work. Ask questions if you don't understand, and research material or websites where you can get more information. Don't hesitate to ask for a second opinion.
No. 10: Know how often the adviser will be in contact
Communication is key when determining your financial future with a professional. But how that communication will happen can make or break your experience. How often will your prospective adviser expect to communicate with you and how? Will it be telephone calls, in-person meetings or emails?
You may find that regular reviews and ongoing communication are necessary to keep you on track with your investments and other financial goals. You want to make sure the adviser you hire offers that kind of support.
More from CNBC.com:
VIDEO ON MSN MONEY
It really doesn't matter what your investments are. The republicans and democrats are working very hard at making our money worthless. As long as we are functioning as international policemen, the investor is going to be defeated in favor or short term specultion (gambling on growth).
Best advice. Read Kilplingers and Money magazine at the library. Good for laughs. Then go to Vanguard buy either a dividend growth index or a high dividend index fund and put it on automatic re-investment.
I left an employer with a big 401k invested in Vanguard 500 index clipped with fees by an insurance company "retirement advisor" who wanted me to "diversify" into loaded and high management fees plus the insurance mortality fee. This was 2007 when the market was roaring and growth tech was the thing. I remember pundits saying by growth funds then just sell when you need money. Oh sure! I put half my money in Vangard Value Index Admiral fund and (silly me) the other half in Vanguard Equity Income Admiral shares. The market tanked in a depression/ recession in 2008. Where were the pundits? Probably selling their shares at loss. I held on and got paid my dividends. Didn't sell a thing and slept well.
Now I still have the same funds plus nice cap gains. Money markets are a laugh. Politicians trying their best not to balance the budget. Pundits praying for growth. I am still sleeping. Oh, the investment advisor, still making money on commissions and the insurance company still making money clipping on your funds up or down, getting mortality fees, and advisement fees
I guess this joke wasn't on me.
If the Fed allows interest rates to rise, and they purchase back those debt instruments at the new reduced price (since the bond price will decline as interest rates go up to reflect current yields) they can retire that debt for a percentage of their costs.
Ker-plunk:....I believe the gov as a whole is doing more harm to my retirement than my financial advisor is......i know that holding bonds is a lot cheaper than plalying with stocks today....i can set aside bonds at no charge to me....then i can go back into lthe mkt at the right time....so on and so forth....
Holding bonds is similar to holding stocks except the volatility tends to be slower. Real estate is slower still. All markets gyrate and depending on where you buy in that cycle can dictate your gains and rewards if held long term. You need to realize that are tops and bottoms to each market and you need to learn to move them when they become overbought, or oversold.
The Fed is holding down interest rates until at least 2014, and then planning to allow rate to float to market rates. If you are caught holding too many fixed payout bonds / stocks, and the interest rates go up, you could be watching your investment shrink as your base cost is adjusted to reflect the new interest rates being demanded.
....I believe the gov as a whole is doing more harm to my retirement than my financial advisor is......i know that holding bonds is a lot cheaper than plalying with stocks today....i can set aside bonds at no charge to me....then i can go back into lthe mkt at the right time....so on and so forth....
I see value in a fee based financial planner. Sometimes you need an external, non-emotional view of your finances and plans.
But for the investment advisors - just think. If they were so smart in picking stocks and mutual funds, wouldn't they just be raking in the cash by investing their own money? Wouldn't they be a talking head on CNBC, Fox Business, etc.? If I had the secret to great investments, do you think I would give it away for fees or 1% commission? No, I'd be using it to invest my own money.
If some is going to lose cash or win cash I want it to be me if its mine if its some one else's cash
you can gamble , remember scared money is scared and if that is you , put it under a rock , that only you no where its buried rule # 76
903960's advice would only be good if you had a very small portfolio. Otherwise, investing is far more complex than that. You need to be able to quanitfy what your required rate of return is to meet your financial goals then allocate accordingly. Risk tolerance is also a key factor. If you want to try this on your own, you should at least look online for some of the free basic financial planning tools out there.
The sad truth is that the vast majority of financial professionals (whatever title they use) are just financial salesman. Most individual investors, however, do not know enough to really do things on their own and feel reasonbly confident they are on the right track to be able to retire. You can get access to good advisors, but you generally need assets above $1 million to get it. Most people do not meet that criterion, so you should at least spend a lot of time online educating yourself and learning where the best free tools are located.
And .... After you go through all the above - Just do it yourself ! Financial Advisors are rip-offs ! Just open an account at an online brokerage - Divide your money equally among several large Iconic Dividend paying stocks and choose the option to automatically re-invest your dividends into more stock unless you need it for retirement income. Keep an eye on those companies to make sure they are doing well and otherwise leave them alone ! Occasionally a large stock gets in trouble and you should replace it but it is rare. It's that simple !
What are large Iconic Stocks - Think brands or services you know very well like Coca Cola, Exxon Mobile, Clorox, IBM, Intel, Chevron, AT&T, Verizon, Proctor and Gamble, Kraft .......... and many others. Another good place to pick stocks from is the Aristocrats - Stocks that historically paid dividends consistently over long periods. Do this and you will beat 90% of all these idiots that will suck your earnings out for themselves !
Need a Financial Advisor - Believe in yourself !
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
RECENT ARTICLES ON PERSONAL FINANCE
Occupy Wall Street bought and forgave the student loan debt of more than 2,700 Everest College students.