While many people prefer to handle their own money, there are certain situations in which a good financial adviser can be extremely helpful. The problem is, how do you know what type of adviser you need, or who you should hire? “The Dos and Don’ts of Hiring a Financial Adviser” will help you understand when hiring an adviser can be a good idea, and how to find one that you can trust.
Know Your Finances Before Hiring Help
Hiring a financial adviser to help you invest your money or advise you on a business decision or help you figure out how to set up a trust fund for your kids can be a great move. Before you decide to do that, however, it’s really important that you have a firm understanding of your financial situation. When you understand your finances, you’ll be able to ask intelligent questions of your potential advisers and understand their answers. You won’t feel stupid asking questions about your own money because you’ll know that, generally, you know exactly what you’re talking about. You’ll work together with the adviser to put your money to the best possible use. A financial adviser is called an adviser because it’s his or her job to advise you on the best uses of your money. Ultimately, however, it’s your money, and you’re in charge of what happens to it.
Different Types of Financial Planners
As in many fields, there are different categories of people who advise others about their money. Some charge fees, while others take commissions from financial products that you buy. The type of financial planner you hire probably isn’t as important as the integrity and experience of the person, but here’s a quick breakdown on the who’s who of advisers.
Financial Planner. A financial planner is anyone who offers financial advice or services. They come up with a financial plan and they may or may not, depending on your agreement and preferences, help you execute that plan.
Certified Financial Planner. A certified financial planner has earned the Certified Financial Planning (CFP) credential and is required to take 30 hours of continuing education courses every 2 years to stay current on industry news and happenings.
- Financial Consultant. A financial consultant provides an overview of financial information and options so you can choose the products that make the most sense for you. They provide information and advice but do not actually make a financial plan for you.
- Money Manager. A money manager is a financial adviser who, after reviewing your parameters, risk tolerance, and total financial picture, agrees to handle your funds, make trades on your behalf, and buys and sells stocks and bonds for you. A money manager normally is employed by investors who have a substantial amount of money.
- Certified Public Accountant/Personal Financial Specialist. More and more certified public accountants (CPAs) are becoming designated by the American Institute of Certified Public Accountants as financial consultants. To do so they must have at least 3 years of experience and pass a test.
- Insurance Agent. You may not normally think of an insurance agent as a financial planner, but some agents specialize in financial planning. They usually have either a CLU (Chartered Life Underwriter) or ChFC (Charter Financial Consultant) designation or both.
- Accountant/Personal Financial expert can also help you file your income tax such as wealth tax, corporate tax, capital gain, small business taxes, GST-related tax, and more.
- Bank Customer Service Representative. A bank customer service representative (CSR) is a type of financial planner who is usually trained by the bank where he’s employed. His job is to bring deposits into the bank, either as CDs, money-market funds, trust accounts, or other types of accounts.
Questions to Ask Before You Hire an Adviser
Here are some questions you should ask the financial advisers you consider:
- How do you charge and what are your fees? Be sure you understand the fee structure. If there is an hourly charge, find out ahead of time what it is. Remember that your financial adviser works for you and should be forthcoming with information.
- How long have you been in this business? As with most professions, the experience is important. You want to find someone who fully understands the financial industry and all its nuances, and who has lived through the ups and downs of the market. You also, however, should look for someone who understands you, your generation, and your financial goals.
- How have you prepared for this job? You’ll want to know about the minimum education of a bachelor’s of accounting or finance advisor. and previous job experience.
- What was your job before you became a financial adviser? Look for a logical progression, such as moving into a financial adviser position from a banking job. If the progression doesn’t seem logical, ask for an explanation.
- Can you give me the names of some other clients whose financial situations are similar to mine, please? References are very important. If you talk to other clients and don’t get all the information you’re looking for, don’t be afraid to ask the candidate for more names.
In addition to these questions, ask to see a Form ADV, Part II, A, and B. This provides a person’s background, and whether they or their firm have been in any trouble in the past with the law or with investment regulatory offices. If an adviser refuses to make this form available, it should set off warning bells.
Finding a good financial adviser and developing a trusting relationship can be extremely helpful in managing your finances and helping you prepare for the future. Just think carefully and ask the right questions before hiring
