Ed note: I don’t know about you, but I get a little confused by our finances sometimes. So if I’m confused, how do I know if a financial planner is truly helping me out? It can be tough to know who will do a good job. That’s why we’ve asked Neal Frankle to help interpret what you should look for when getting help from a financial advisor.
If you’ve decided that you need a financial advisor, how do you find the right one? This is important. If the advice is not good, it may be too late to do anything about it by the time you realize it. Fortunately, there are six questions to make the process of finding the right advisor easier. Let’s get to work.
1. What services do you/don’t you provide?
Anyone can call himself or herself a financial planner or advisor without training or licensing. They should explain their specialties, and how long they’ve been in business.
It’s also important to understand what services they do not provide. For example, most advisors do not do taxes. If that’s what you need, go to a CPA or do your own taxes.
2. How do you get paid?
Some advisors earn commissions. Others earn fees. Some earn a combination. I’m biased because I am fee-based, but I honestly think there is a problem working with a commission-based salesperson. I say that because some commission-based people might sell you the product that earns them the most – not necessarily the product that best suits your needs.
I admit that not every fee-based planner is qualified. But since most fee-based planners have to adhere to a fiduciary standard, you at least have some protection.
3. Does your firm limit you in any way?
A planner could say they offer investment advice, but if the firm they work for limits the investment choices, then their investment advice could also be limited to just those products. My advice is to look for a professional who is objective, and who has all the tools available to help you reach your goals, instead.
4. What licenses and certifications do you have?
Some life insurance agents call themselves planners. But if all they have is an insurance license, they may not have the training and experience to provide sound advice when it comes to other issues, like retirement planning and investment strategies. Likewise, if a person has a securities license, they may be commission sales people. As I mentioned above, they may only recommend securities that they will profit from.
If, on the other hand, the advisor is a Registered Investment Advisor and fee-based, they are probably independent. This is not reason alone to hire them, but it’s a good start. Sitting down with a Certified Financial Planner may also be beneficial.
5. What is your investment strategy and why?
Are they short-term traders? Does the advisor buy and hold no matter what? How do they select securities? These are simple, yet important, questions. And your task is to see if the answers they provide make sense and if they coincide with your risk comfort zone. Ask to see their results, too.
6. Describe your typical client?
This might catch your candidate off guard – and that’s a good thing. Look for an advisor who works with people like you. This way they’ll be familiar with situations people like you face and can be proactive.
If you need a financial advisor go through these questions with two or three candidates. Listen to their answers and check your gut. If it sounds and feels right, you just might have the person you are looking for.
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