Your hard work is finally paying off. You have earned yourself a steady and decent amount of money. All around you is the media buzz about financial planning, and it’s starting to make sense. You need to save for the future, maybe invest in something. However, you don’t have a clue where to start, and you don’t want to take blind leaps of faith with your hard earned money.
You decide to hire a financial advisor. It’s a daunting decision; there are so many options in the market, and they all come with different experience, qualifications and varying fee structures. Which one do you go for? This is someone you are about to trust with your money, which definitely makes it a high stake decision.
To help you narrow options and find the right financial advisors to handle your investments, here is a checklist of essential things to do before you hire one.
1. Run a Background Check on the Financial Advisor
Run a background check to ensure they do not have any criminal records, especially related to discrepancies handling clients’ investment. You also want to make sure they do not have any recurring investigations by financial planning regulatory bodies or investment industry groups. You want to work with someone who upholds the law and has your best financial interest at heart.
It is also critical that the planner knows what they’re doing. Check their educational background and qualifications. Financial planning qualifications will probably be a lot of jargon that may leave you more confused than when you started. That’s where you do your homework. Study carefully the qualifications a financial planner needs to have and what qualifications top people in the industry hold.
2. Ask to See Examples of past Client Successes
Find out about your potential advisor’s success rate. Do they have clients they have already helped make smart investments? What kind of investments have they advised for their clients before, and how are those investments holding up? They are all non-intrusive questions your financial planner should be able to answer before you hire them.
They should be able to provide you with examples of a real client’s quarterly reports-with the name redacted and clearly explain each line on the assets mix and results.
3. Ask for a Fiduciary Pledge
A fiduciary pledge is taken by a financial advisor agreeing to act in the client’s best interest at all times. As per fiduciary duty, a financial advisor is required to disclose upfront before any contracts are signed to provide investment advice important information such as the services they offer, compensation expected for services, full range of fees, methods of analysis, any disciplinary actions against them, and possible conflicts of interest. If the financial advisor has a conflict of interest, they must either eliminate it or disclose and fully explain to the potential client all facts relating to that conflict.
4. Consider the Pay Structure
Generally, financial advisors are compensated through a fee-based structure or a commission based one. Commission based financial advisors may have less than ultraistic motives to push a certain fund or insurance package if they are getting a cut from that investment.
Fee based advisors might also have their own motives to push if they are earning a percentage of your annual assets. They might not be inclined to encourage you towards better investment moves that would cause their fee to shrink.
If you are just starting out and you don’t have a lot of assets, it might be best to consider an advisor who charges by the hour. This advisor will give you fairly simple work you can understand, and since most hourly paid advisors are just starting out, they are likely to take care of your finances well; your recommendation is important to helping them grow their business.
5. Read the Entire Contract
This is a high decision contract you are about to sign. As intimidating as it might seem to read the entire contract, with all its legal terms and clauses, it is vital that you read and understand everything.
Talk to your lawyer and have them go through the entire contract, explaining it to you fully. Blindly signing the contract may mean missing clauses that may be detrimental to your investments in the future. For example, if you decide to pursue arbitration for mismanagement of your portfolio, you might not have a defense because of certain clauses.
6. Make Sure You Understand Their Language
The finance industry is riddled with confusing terms, big words, jargon and complicated concepts. The financial advisor has the responsibility of translating those terms to language that is relevant to your situation and that you can easily understand. If a financial advisor deliberately neglects to break down those terms, or is irritated by your constant asking for clarification of things, it’s best to move on to the next.
7. Find an Attentive Advisor
Nothing is more frustrating like being ignored when you need help. Now add the fact that it’s someone who is currently handling your money. That’s a whole lot of fear, frustration, and panic that you definitely don’t need. An advisor who rarely picks up calls, doesn’t returns emails, or neglects to keep you updated is an advisor you want to run from. Customer service is a very important trait of anyone providing a service, more so for someone providing a risk service like investment management.
Finding the best financial advisor is dependent on you doing your due diligence. Know what you want, want you are expecting, and what is not acceptable and bring it to the attention of any potential advisor. If they cannot meet your requirements, keep shopping around. Avoid settling for an investor simply because of a low cost. Rather, find someone who can match your requirements for your price, or be ready to pay a little more to get what you want.