Hiring a Personal Finance Advisor
Many business owners assume they can handle managing their personal finances. But most simply don’t have the time or financial wherewithal to determine how best to invest their money. If you’re ready to bring in an expert, you need to decide to whom you are willing to hand over your financial matters.
Would a certified financial planner be best? What about a personal financial specialist or a chartered financial analyst? And then there’s payment. Hourly? A percentage of assets or commissions? The decisions are plentiful, as are the risks.
Paying a Financial Advisor
Experts suggest you first decide how you will pay an advisor, partly because the type of compensation you are comfortable with will narrow the list of possible financial professionals. Hiring an advisor who earns commissions can be the least costly, but some people fear it compromises the advisor’s objectivity. Paying an hourly fee or percentage of assets eliminates that potential conflict, but it raises the upfront cost. And in between, some planners charge fees but also accept commissions for specific products.
That said, the adage “you get what you pay for” bears special validity here. While the fees a planner can potentially make are startling to many, the reality is that hiring the right planner can ultimately lead to savings that dwarf any expenditure.
Finding the Right Fit
To find the right financial advisor for you, ask for referrals from colleagues and friends who are in similar situations to yours. The Financial Planning Association provides a list of certified financial planners (a designation considered the minimum acceptable) upon request.
Also recognize that not all financial advisors will meet your needs. Certified financial planners or chartered financial consultants can advise on taxes, investments, insurance, retirement, and estate planning, though CFPs have a bit deeper background. A chartered financial analyst deals mostly with analysis of securities, while registered investment advisors or registered representatives deal primarily in investments. RIAs are certified by the Securities and Exchange Commission, while RRs are certified by the National Association of Securities Dealers.
Interviewing Financial Advisors
The FPA recommends in-person interviews with multiple planners once you find local ones whose experience and clientele fit your situation. Free one-hour consultations are common, so be sure to ask.
Make the most of these interviews by coming prepared. Ask for a packet of information from the advisor prior to the meeting so you may review it. Such information should include the advisor’s resume, specific investment and financial planning approaches and philosophies, and compensation fees and schedules. It should also include Form ADV, which investment advisors use to register with the U.S. Securities and Exchange Commission and their state. It contains required disclosure information about the advisory firm. This form must be kept up-to-date and must include any disciplinary action against the firm or any of its personnel.
During your interviews, ask about the planner’s educational background, client base, and experience. Don’t expect specific recommendations during the interview process; after all, the advisor is selling a service, not doing charity. Write off any advisor who gives a specific recommendation, because an advisor worth anything must conduct a detailed look at your situation before issuing anything more than a cursory recommendation.
The Financial Planning Association publishes a helpful brochure on how to hire a planner, including the sometimes complicated task of sifting through the designations, and another that lists 10 questions to ask every professional you interview. Go in ready, and you’ll leave confident not only in your decision but also in your future.
