You finally have a stable stream of income or fairly high paying job. You’re earning enough money for right now. You’re working hard and are now thinking about being set up for an early and comfortable retirement.
Investing into business could be the thing.
Yet, your mind is full of ideas but doesn’t what to invest into. Of course, you are taking consideration that you don’t want to lose all your hard earned money.
Thus, it’s time to hire a financial advisor.
Now choosing the right financial advisor is vitally important to your financial well-being. The stakes are high when you open your finances to a third party, so do your due diligence…
As this is someone you will be trusting with your investments, and your money for retirement in most cases which makes it a high-stakes decision. It’s a decision that you need to think over a lot of times as you require someone who you can trust with your money.
Taken into account that there are a lot of choices in the market with different expertise and qualifications, so who do you want to choose?
Let us help you narrow down the search when choosing the right financial advisor – here’s the checklist for you to go through before hiring one.
1. Run a Background Check on the Financial Advisor
Do a background check and make sure that they do not have a criminal record. It is better to be careful as you do not want to hire someone who had cases filed against them – especially if they are financially related.
2. Review Qualifications
“As a consumer, you should understand what qualifies the person advising you to give such advice, and how much work it took to allow them the ability to do so,”
– Kelly Campbell, founder of Campbell Wealth Management.
How do you make sense of the alphabet soup in financial advisor designations?
Do your homework, and find out which titles, such as certified financial planner, offer the kind of expertise you’re looking for. Many designations sound impressive, but they don’t require more than a couple of two-hour classes.
3. Ask to See Evidence of Past Client Successes
Ask the adviser about their typical clients. This will help you judge whether they are experienced in dealing with people who have similar issues and goals to you.
For example, are the adviser’s other clients planning for retirement or are they young families wanting to save for their or their children’s education?
Ask to see an example of a quarterly report.
Ask the advisor to provide you with an example of a client’s quarterly report with the name redacted. Ask the advisor to walk you through each line, explaining the rationale behind the asset mix and the results.
If you were thinking of hiring a caterer, you’d try the food first, right? Along the same lines, it makes sense for an investor to see an example of a financial advisor’s work before hiring him or her.
4. Read the Entire Contract
Before engaging yourself in a contract of agreement, you should always have the understanding of every clause in the document.
Read the fine print…
Examining such clauses is like focusing on a prenuptial agreement. A splash of reality hits you the moment you are ready to choose someone you think will be a good fit.
Does the advisor include a mandatory arbitration clause in his or her contract?
Read the contract to find out if the advisor indicates if you’re willing to invest in speculative investments, for example. If you sign that piece of paper, you may not have a defense if you pursue arbitration for mismanagement of your portfolio.
Remember, anything can happen especially when it involves money matters so you should always have some reference to support your claims if ever you get to the point that you will pursue legal actions.
It’s best if you consult a lawyer to proof read the entire contract and to fully explain to you all the terms and conditions that you are about to sign.
5. Ask for an Fiduciary Pledge
A financial advisor takes a fiduciary pledge where they agree to act in the client’s best interest at all times.
A registered investment advisor, who is held to a “fiduciary standard of care”, looks after the assets of another person on that person’s behalf. They are fully transparent and required to disclose any potential conflicts of interest.
6. Consider the Pay Structure
In a perfect world, the way your financial advisor is compensated wouldn’t affect the quality of advice you receive. But since that’s not a reality, us as investors must understand how money motivates advisors.
The pay structure of financial advisors can be either be fee-based or commission based.
Commission based financial advisors can have less radical motives to drive a certain fund if they are getting a cut from that investment.
Advisors paid on commission must meet a suitability standard, meaning they must reasonably believe any recommendations made are suitable in terms of the client’s financial needs, objectives and unique circumstances.
Fee-based advisors have their own motives too if their earning a percentage of your annual assets. They might not be willing to advise you to have a better investment moves that would affect their fee to decline.
So really the difference between these two pay structures is the motives of the advisor that’s earning from the investments they make on behave of their client(s).
It would best to consider advisors who charge on an hourly rate if you are still starting out and you still have less assets. They are those who are likely to take care of your finances as they are still trying to impress you with how they handle in helping you invest your money properly.
7. Find an Attentive Advisor
In the world of work, providing professional service should be accompanied by good customer service trait. Of course, you wanted to have a financial advisor who attends to your needs.
One who picks up your calls, return our emails, and keeps you updated with your financial activities.
If you have this kind of advisor, they probably would try to gain your trust and so you would be very happy to keep them for a long term basis.
8. Make Sure You Understand Their Language
In a financial industry, there are a lot of terminologies and concepts that are confusing. It is the role of the financial advisor to explain to you those terms and make you understand the situation.
If this role is not performed well by your financial advisor, it is best if you try another one who can do this for you.
9. Determine if the Advisor Can Speak Your Language.
Investment communication is riddled with confusing terms, big words and complicated concepts. It’s your financial advisor’s job to translate those ideas and terms into language that is both understandable and relevant to your situation.
Do you want an advisor to use financial jargon, such as “secular trend” and “organic growth” without explaining what the terms mean?
If an financial advisor isn’t willing break down these terms for you, it may be a sign you should keep searching for a better fit.
10. Will they Review your Tax Return?
Tax rates are set to go higher. A planner that looks beyond the financial tools and evaluates their effects on tax returns is a smart idea. Then it’s a net-return, not gross-return focus.
An adviser should review your tax return at least annually. This is necessary prior to making informed recommendations on tax subjects.
11. Focuses on more than 1 Investment Product
Many advisers focus on one class of financial tool whether it is banking, insurance, or investment assets.
A comprehensive planner uses a variety of financial products, when warranted. It allows the planning to determine the necessary tools to construct your financial house.
There is not a one-size-fits-all in a holistic approach. Watch out for a salesperson who recommends the same solution for every client.
If your recommended portfolio is made up of just one type of investment, for example all mutual funds or all annuities…run. Nothing screams “product salesman” more than a financial adviser that offers the same advice to all clients.
12. Do They See Your Big Picture?
Comprehensive planning is more than just maximizing investments.
It is coordinating your investment portfolio with other important factors such as your overall income plan, your tax plan, and your estate planning that will ultimately decide your best approach to retirement planning.
Find a comprehensive retirement planner who can design the best unique plan for your situation and retire securely. They must know what you want to be doing when it comes to your golden years.
In the end, it is still up to your determination to find the best financial advisor to help you with your financial investments.
You need to know what you want, identify the core values you wanted your financial advisor to possess. Always keep in mind that you need to consider the quality of performance of the advisor that you will hire. If they cannot meet what you expect, try to look for another one.
Avoid settling for someone just because they have low cost. You might want to extend your budget for their fee if you want to get the best of what you want.
Remember, aim for those who are efficient and effective with their job.
Nicky and Dave