Previously, I wrote about how to determine if you need an advisor or not when it comes to your money. In this post, I will walk you through some things to look for when hiring an advisor.
Ideally, you will want to find a financial planner. This person will look at your entire financial life, not just your investments. You may think that the other financial areas of your life aren’t important at the time, but they are. It is important that you have everything in place should the unthinkable happen.
Things To Look For
When evaluating financial planners, look for one with the CFP or Certified Financial Planner designation. These people went through a rigorous test administered by a board and the planner must continue to take educational courses in order to maintain their designation.
Financial Planners will charge you for their services. They do this either through commissions, or hourly or flat rates. I recommend avoiding those that earn their pay through commissions as there is a conflict of interest present. The planner should be looking out for your well-being, not their own. By earning wages through commission, the planner may recommend funds that aren’t the right fit for you.
Those that charge fees, typically charge either a percent of assets under management or through an hourly fee, like a lawyer. In the case of a fee tied to assets under management, the planners fee, typically 1%, will be based on how much money you have invested with them. The more you earn, the more they make. Realize that this fee is in addition to the fees that you are charged by the mutual funds you invest in.
Because of this, I suggest you look for a financial planner that works with passive investments. The expenses of passive mutual funds are very low and when you add on the planner’s fee, the cost usually is what you would pay for the average actively managed mutual fund.
Note that you may find that planners only deal with those that have $500,000 or more to invest. Have no fear. There are planners that deal with smaller clients. Some mutual fund companies will even construct a plan for you for a flat fee. However, once this plan is created, there is very little, if any, hand holding from this point.
Next, look for a planner that is a fiduciary. Basically this means that the planner has pledged to act in your best interest at all times. If they are not a fiduciary, then anything they sell you simply has to be suitable for you.
Make sure the planner has a custodian. Many use Charles Schwab or TD Ameritrade. This is whom your check should be made out to. If the planner insists that you make checks payable to them, run. This is a red flag. In fact, for many, it is illegal for them to accept a check you make payable to them. If you do so in error, they should tell you that they cannot cash or hold the check. It must be returned to you.
Lastly, be sure to conduct a background check on the planner. You can review the advisor through many financial agencies. If there are any convictions or investigated the planner, look into it as this could easily be another red flag.
This list shows you that you need to do your due diligence when it comes to choosing and hiring a financial advisor. Remember, it’s your money and you worked hard for it, so don’t just blindly give it to someone that you didn’t research first.
Hi, my name is Jon and I run Compounding Pennies. I’ve been interested in personal finance since high school and love writing and talking about it. You can learn more about me in the Authors section of this site.