6/5/2014 3:15 PM ET|
Need a financial adviser? Do your homework
Hiring a pro to guide your finances doesn't mean you're done making tough choices. And your first tough choice is finding the right adviser.
Finding the right financial adviser is the first step toward receiving good financial advice. To save both time and money, the most productive way you should go about this is to rely on those you trust to refer you to someone they either work with or know personally.
Friends and family are your best options, but it's also a good idea to consult with your accountant or attorney to steer you in the right direction, especially since most financial advisers work closely with professionals from both those fields.
Interviewing at least four to five financial advisers from different firms will give you an unbiased opinion when deciding on whom to work with. Most advisers don't charge fees for initial meetings, so don't be shy when asking for a complimentary interview.
Go to each meeting prepared with a list of questions. Your questions should address things such as how long advisers have been in business, the demographics of their current clients and the average net worth of each client.
The answers you receive will help you make your decision, so be selective with your questions. For example, if you find that the adviser's clients' average net worth is drastically different than yours, you should question his or her ability or willingness to service you. In addition, an adviser who works primarily with retirement plans for small businesses may not be a good fit if you're looking for estate-planning advice.
During the interview process, a good adviser will gather basic information about you and, in many cases, will address immediate concerns relevant to your situation. For example, if the adviser learns that you recently received a large lump-sum payment from a settlement or inheritance, he or she should emphasize the impact that taxes may have on your investments. This should give you the impression the adviser cares and knows how to help you.
Once you've narrowed your selection down to two or three advisers, expect each one to want to get to know you a bit more (i.e., what you do for a living, what you do for fun, who your spouse is, how many kids you have, etc.)
advisers should solicit as much information about you as they can, to develop a complete understanding of your financial situation. This includes your sources of income and savings, spending habits, life and medical insurance, inheritances and even things such as health issues and family history. All these factors play a significant role in a good financial adviser giving comprehensive recommendations.
In most cases, financial advice is unique to each situation, so an adviser's analysis is important when recommending one product over another. Expect advisers to diagnose your financial situation before prescribing you advice.
For example, a recommendation to establish a life insurance trust doesn't mean everyone with life insurance should own a trust. Or a recommendation to purchase a tax-free municipal bond doesn't mean you should be buying bonds. In both these cases, you'll end up paying unnecessary commissions and/or fees.
The adviser's plan of action should address both your short- and long-term goals and how you are to go about accomplishing them. For example, if you're looking to shelter current income from taxes while saving for retirement, yearly contributions to a 401(k) plan might make more sense than a Roth IRA.
Also, it might make more sense to direct permanent life insurance premiums toward other savings vehicles for retirement, because the cost of the policy may not justify your intentions. Your strategy should allow you to adequately adapt to life-altering events, and it should change as life changes.
Your life may throw you unexpected curveballs, so it's important you revisit your strategy on an ongoing basis. This should be done in regular, recurring meetings with your adviser on a quarterly, semi-annual or at least annual basis, depending on your needs.
More from CNBC
VIDEO ON MSN MONEY
The problem with picking a financial advisor is that if you are to financially illiterate to do it yourself, you are to illiterate to know who is a good one and who is not. Anyone with normal intelligence can do it yourself.
Start with Vanguard or Fidelity. With Vanguard you can capture the entire worldwide equity markets with as few as one index fund and the bond world with one index fund. How much simpler can it get? Fidelity almost as easily. Index funds are the only way to go. The only possible exception to that is in emerging markets equity funds. But stay no load only.
Paid advisors need to make it look way more complicated, mysterious and far more overwhelming that it really is in order to make you think you need them. You don't.
Most people don't need a financial advisor long term.
The trick is to speak to the most knowledgeable people who have made it. In general you need a basic plan and stick to it. I've advised a lot of people over the years. If they stayed with the plan they retired comfortably. If you follow these steps you will be ahead of most.
1] review your checkbook and credit card statements. Know how your spending your money.
2] Make a plan to get out of debt and make a plan to invest on your own in the beginning.
3] Spend some quality time at the library, make it your mission to read Wall ST journal and Investors Business Daily.
4] Use Yahoo finance to research good stocks. read profiles and sign up for email alerts directly from the companies.
5] Some very good companies offer a stock accumulation plan for a small fee. Exxon is one
6] use MSN stock scouter for a starting list.
7] go slow paper trade to see how you do.
8] review your plan every week to make sure your on course.
9] Never try to make a killing because 99% of the times it will be you who gets killed.
10] If married always work with each other.
A good financial advisor is a must for most people. The majority of the people out there know little to nothing about protecting and saving/investing. I prefer life insurance financial advisors because they get it right, "Protection First!".
You need to know how long that they have been in the business and how many companies that they have been with. Stay away from "job-hoppers" that move from company to company. There's usually a good reason why they move so much, and the reason is them. I prefer a rep that is with one of the top 4 mutuals (Guardian, NYL, Mass Mutual and Northwestern) because the products and philosophy tend to be A LOT better than the gazillions of stock companies out there.
Look for designations. CLU, ChFC, and CFP are industry designations that signify that the person is a professional, competent and should know what he or she is talking about.
Lastly, if they want you to buy a Universal or Variable Universal Life policy, RUN LIKE HELL !!!
I have a question, my house is worth 195,000 .I owe 60,000 on it. I lost my job 5 years ago,and have received severance,i stretched for ,awhile, then unemployment for awhile,I do not have any debt. I receive a small pension of 456 per month which I pay my medical 355 per month,
I have literally lived off my 401k for the past 18 months,looked and tried for a job everywhere I can.
continue to do so,I have 13 more monthe before early social security,1130b per which,which by then will be my only income
I have 130,000 equity in my home,,,,should I sell the house and buy a small condo and pay cash
for possibly 105,000 my debt would be utilities and food ,with 25,000 in savings, or stay here
with a mortgage 565 per month and utilities and go without medical ins, I had a heart attack 5 years ago.Also I would not have any money saved,I am single 61 yrs old
WHATS THE SMART THING TO DO
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
If you think you're too smart to fall for cons and scams, you're setting yourself up to be a victim.