You hire a personal financial advisor to help you develop a personal financial plan that is expertly designed to help you achieve your financial goals, be it saving for college, getting out of debt, or (and this is a biggie) maximizing your savings for retirement.
The first criteria: Competence
So the very first thing you should do is ask what self-regulatory industry group or groups does the advisor belong to and then check those groups out. Note that the CFP Board has a great reputation. They require all their certified advisors to have at least 3 years of experience, the completion of specific educational requirements including having a B.S or B.A. degree in a relevant degree area, and they need to pass a serious and comprehensive exam.
Additionally, your personal financial advisor should have at least a B.S. degree in finance and/or business from a qualified degree granting college or university (the CFP board requires this). Other type of degrees can be a great foundation for financial planners, such as math, engineering and even law.
If the advisor you’re considering does not have a degree, make sure they have some sort of basic foundation in math or statistics and that they have experience with a solid track record of success. A solid experience and a solid track record of success can make up for a lack of a formal degree, but they should have a lot of both. Ideally, the advisor you’re considering should have specialized training in their area of advertised expertise, such as investments, real estate, or taxes.
Finally, a good competent personal financial advisor, like a good general medical practitioner, will have a well rounded education in finance and should be able to advise you if you need to seek specialized help in a more specific area even if they themselves lack the extra training in that specialized area.
In the end, a good personal advisor should be someone who is committed to constantly learning, especially because the entire area of finance is constantly evolving.
The second criteria: Honesty
While personal recommendations are potentially valuable, and you should follow up on any you’re given, treat them as only a starting point. Personal recommendations by themselves are of very limited value (Madoff had stellar personal recommendations).
There’s basically two types of personal financial advisors: one you pay to give you advice and one you pay to give you advice but he or she is also a salesperson who makes money by selling financial products such as stocks or other investment securities. Either type is a good choice depending on what you need. The advisor just needs to be honest and up front about how they’re getting paid.
How to avoid being taken
- Never agree to a fee as a percentage of the value of your assets. Instead pay by the hour.
- Question any big ticket items, i.e., make sure you’re not paying hundreds of dollars for what amounts to almost no time on a relatively simple task.
- Never ever give “power of attorney” to your financial adviser.
- In this day and age, you should not be buying mutual funds through a bank or broker. Often these purchases come with fees and extra charges. Take their advice but purchase elsewhere. Something like Sharebuilder.com is a great alternative for the everyday investor.
Resources to Check Out:
- Errold F. Moody’s financial planning site. It’s comprehensive to say the least and forbes.com says “his (site) is quirky but informative, and suggests ways to advocate for yourself when planning your estate.”
- 10 Questions to Ask When Choosing a Financial Planner