April 26, 2010 — Most of us find it hard to admit the truth: when it comes to skills that require any degree of expertise, like financial advice, we are amateurs. Just like our skills in plumbing, electricity, architecture, medicine, software programming, or teach golf; it’s best to have an expert doing the work for us. This article will explain why hiring a competent financial advisor to help plan for your retirement is a smart move. After all, if you don’t have enough money, it’s going to be hard to have the retirement you deserve. We’ll provide some basic tips on how to find a good investment advisor. At the end of the article we have listed some helpful resources that explore more dimensions on how to make a smart choice.
One of the biggest advantages that financial advisors offer is…
the help they can provide before you retire. Beyond participating in a company 401k plan, few people have the self-discipline to set up a regular savings plan for retirement. Fewer still actually understand how much money they need to set aside for a comfortable retirement. A good financial planner can help you establish realistic goals and a solid plan for achieving them.
After you retire financial advisors usually provide different kinds of services. Here are some of the ways they can help you:
– Manage your money to bring you a reasonable and safe return
– Allocate it into the types of investments that are appropriate for your age and situation
– Determine the best time to start taking social security for your situation
– Decide how much you can safely take out of your savings each year so that you don’t run out of money
– Provide helpful advice about taxes, distribution, and how to reduce or increase your income if your situation calls for it.
How to Find a Good One
Judging by the number of questions we get, we suspect that most people’s method for finding a financial advisor is a random one. They choose someone who is a friend, golf partner, a neighbor, or sister-in-law. While occasionally that’s a good idea, most times it’s not. Remember Bernie Madoff – most of his clients were referrals from friends. One of the best reasons for not choosing a friend is that is very hard to fire someone you are close to. Hiring someone you don’t know is not that easy though. The process is time-consuming and no one wants to make a mistake; hiring the wrong adviser will cost you money and considerable aggravation.
Here are some principles and steps to help guide you in your search for the perfect financial advisor:
– Cast a wide net. Ask successful people you know who they use – and why. Your lawyer or accountant might have some recommendations for you. Attend seminars put on by financial people in your area – they are a good way to get familiar with who is out there. Consult local directories for possible names. There are a myriad of certifications and titles for financial planners, advisors, brokers, etc. Some are a lot more strenuous than others.
– Consider using the firm that manages your money now. Big investment firms like Vanguard, Fidelity, Schwab, etc. have online tools to help you manage your money. If your assets are very small you might have no choice but this approach. However if your assets are substantial, these firms would like nothing better than to develop a “custom” investment approach for you. It probably won’t be as detailed or as personal as what you get from an individual financial planner, but it might be a good benchmark for a comparison.
– Talk with several candidates. You don’t have to commit to anything, just schedule an exploratory meeting. You’ll learn a lot about fees, style, personal qualities, and more from a short interview. Questions you will want answers to include: how long have they been in business, how many clients have given them additional money, have there been any complaints or questions from regulators, what kind of certification do they have (and are they current), what will their approach be in setting up your investments, and what is their investment philosophy and/or some of their favorite investment vehicles. What are their fees and how are they calculated? Do they have conflicts of interest, such as earning commissions on the trades they place on your behalf? Keep a healthy skepticism when they talk about results.
– Ask for references. This can be a tricky area, since other clients might not want their privacy invaded. But if you can get some references (or you already happen to know some), you will find out some of the most useful information to help with your decision. Does the adviser ask for input, take the time to explain their approach, follow up on details, are the statements clear, the fees reasonable, the results encouraging? The answers to these questions will be very helpful.
– How to Decide? The New York Times had a good suggestion in a recent article – construct a simple pros and cons chart for each of your serious candidates. Looking at all of the factors in one place will probably help crystallize your decision.
– After the decision. As if you had an employee, best management practice is to hold at least an annual performance review. How was the advisor’s performance vs. various benchmarks, such as the rate of inflation, S & P 500 index, and various bond indices? Every advisor is going to have bad years, so it is important to compare how they do against the rest of the market over a few years. If you are consistently unhappy, it is probably time to move on. And if you are fortunate enough to have substantial assets, you might employ more than one advisor. You can compare them, and if there is a long-term trend you have options.
For further reference:
What Women Want in a Financial Advisor – And How to Find a Good One
Wikihow – “How to Hire a Financial Advisor”
Get Rich Slowly – “How to Hire a Financial Planner”
MSN.com – “7 Mistakes to Avoid When Hiring a Financial Advisor”
New York Times- “Taking the Time to Pick the Right Financial Advisor”