Is Your Money in the Best Hands? 5 Questions to ask Before Hiring a Financial Planner

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hands-moneyChoosing a financial consulting is one of the most important decisions an individual will make in his or her lifetime. Once you start earning a consistent salary, you should invest what’s left over after paying for living expenses. Saving large amounts of money in a bank account is not advisable because the interest rate is usually negligible. Investing in a financial advisor is not only fiscally responsible, but also highly beneficial in the long run. Before hiring a consultant, you should do research and ask a few questions before making a decision.

1. How are you paid and who do you represent?

Before making a decision and consulting a financial planner, make sure you know how the consultant is paid and who the money comes from. Most of time, the majority of the compensation comes directly from the client. However, brokers can receive commissions on mutual funds, annuities, and trailer fees. In addition to this, the financial consult may work for a firm that pays bonuses on investment products and trading options. You need full disclosure of all the income your financial planner is receiving to avoid future conflict. You also need to figure out how you will pay your financial planner. Most of the time, payment is due when service is rendered. Consultants may accept payment by the hour. However, seasoned financial consultants accept about one percent of the value of assets under management.

2. How much experience do you have?

It is important to know your financial adviser’s track record before signing a contract. Details about previous accounts and clients should be disclosed to show strong performance. Most investment consultants have degrees in finance and business in addition to extensive experience working for financial firms. You should avoid consultants with little experience despite a strong educational background. After researching a prospective consultant, arrange a meeting and request a copy of the Form ADV. This document is registered with the Securities and Exchange Commission, or SEC, and discloses information about potential conflicts from previous clients. You should also ask for a detailed performance record dating back five years to gauge the financial consultant’s competence. Make sure you follow up on all client references with a phone call.

3. Who will be responsible for my investments?

Most financial planners work directly with their clients. However, it is imperative to know who actually manages your funds. Some investment managers are simply middlemen who redirect the funds in your discretionary account to another financial consultant or investment firm. Working with a middleman is more expensive and the advisor may not have the expertise required to properly manage your accounts.

4. What is your area of expertise?

Every financial advisor has an ideal client. Some financial planners work best with young individuals paying off student loans from college while others may specialize in retirement planning. You should always choose the financial planner that best suits your needs. If the consultant is in a similar situation as yourself, he or she may be better suited to serve you. For example, a 60-year-old consultant with a proven track record is better suited in managing your retirement portfolio than a 26-year-old consultant straight out of college. These minor details may be the difference between a great partnership and a bad experience.

5. What services do you offer?

The services offered by a particular financial advisor depends on a multitude of factors including state licensing requirements, credentials, education, and expertise. For example, a financial consultant cannot offer investment advice without proper licensing. Your specific situation dictates which financial consultant you end up hiring.

Financial consultants are great for effectively managing large amounts of money and getting out of debt. It doesn’t matter if you have a million dollars in assets or debt, a financial planner is always beneficial. Athletes like Mike Tyson are bankrupt because they lacked proper financial advising at the peak of their careers. Unless you are a money guru and an expert at managing mutual funds and retirement portfolios, it is strongly advisable to invest in a good financial planner.

About the author: Daniel Johns writes for Blueprint Wealth, a leading provider of independent and expert financial planning services and investment advice in Perth, WA.

 

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