They say money can’t buy happiness, but having a plan for your money definitely can.
We all know financial problems are a leading cause of stress. So it should come as no surprise that a recent study found people with the very disciplined financial plans are more likely to be happy in the future than those with less comprehensive plans or no plans at all.
If you’re looking to create a financial plan or improve upon an existing one, enlisting the help of a financial advisor may be just what you need. The key, however, is finding the right one.
Establishing a relationship with a financial advisor requires a lot of trust – that’s where many people get hung up. In a recent survey 55 percent of people said the greatest challenge in financial planning was being unsure of whom to trust for financial advice. On the heels of the financial meltdown and the seemingly never-ending stream of financial scandals, it’s no wonder. But while begin cautious is a good thing, it doesn’t mean you should write off the idea of hiring an advisor altogether.
There are plenty of highly qualified, trustworthy advisors out there and gathering the right information can help lead you to one who will serve your financial needs and provide you with top-notch service.
Here are some tips to consider before singing on with an advisor:
1. Get a referral – While this isn’t always an option, if you can get a referral from someone who has worked directly with an advisor that’s a great place to start. Be sure to ask what they have liked and disliked about the experience.
2. Make sure the advisor has enough experience – You don’t want an advisor making rookie mistakes with your money. It’s important to find someone who has been around the block enough times to have experience managing money in various situations and during different financial climates.
3. Ask about asset requirements– A lot of advisors require clients to have a certain amount of investable assets. Usually you can find this information on their website, but if it’s not listed you could find out quickly by calling. It’s always best to work with an advisor who has the most experience with clients that have a similar asset base to your own.
4. Understand how they’re compensated – You should have total transparency when it comes to how an advisor gets paid. This can tell you whether they’re working toward your goals or have another agenda. Increasingly advisors are moving toward fee-based structures, in which they get a percentage of their clients’ assets – this is good motivation for them to grow your assets since they benefit too. Some, however, still get paid commissions for selling investment products. They may also work on a combination of fees and commissions or charge flat or hourly fees, so it’s important to know upfront.
5. Ask about credentials and capabilities – In terms of credentials, the gold standard in the industry is a Certified Financial Planner, or CFP, designation. Some advisors may have other designations instead of, or in addition to CFP so ask what those are and what they mean. You also want an advisor to have a well-rounded background that will enable them to advise you on all of your financial issues. That doesn’t mean they need to be a tax lawyer or estate planning attorney but they should be able to offer some advice or connect you with an expert who can.
6. Know the lines of communication–You shouldn’t have to jump through hoops to get in touch with your advisor; and if you call or email with a question you shouldn’t have to wait a week for a response. Ask the advisor how frequently you can expect to be in contact and through what methods they prefer to communicate. Whatever the answers are, be sure it’s something with which you are comfortable.
7. Check their background – It’s important to see whether the advisor has had any significant complaints or issues in their past. The best place to check is the website for the Financial Industry Regulatory Authority, FINRA. By entering the advisor’s name you can find out their work history including how long they’ve been in the business and whether they have faced any regulatory issues.
8. Ask about portfolio check-ups– Part of creating a successful plan means making changes to it as new developments occur, either to your personal finances or in the broader economy that could impact your investments. That’s why it’s important to find out how often and under what circumstances the advisor will revisit your financial plan to make sure it’s still on track.
9. Online Tools – Although this isn’t necessarily a deal breaker, it’s a good idea to check out the advisor’s website to see how administratively easy it is to use. The site should be easy to navigate and allow you to log on to check on your portfolio or update personal information when needed.
10. Ask to speak with current clients – Some advisors have long-term clients who are willing to share their experience with new prospects. This isn’t always the case but it’s worth asking, particularly if you didn’t find the advisor through a referral.