(Disclaimer) All information in this article was gleaned from the pages of “Getting Started in Finding a financial Advisor” Author Chuck Jaffe, senior columnist, Market Watch.
The hiring of a financial advisor is based on one priority and that is “need.” If its simple taxes then you are not in need to the point that anything more than a tax preparer such as H&R Block would do. But if you are a head of household who has children, mortgage, retirement funds and ailing parents that you are responsible for you need someone who can take full advantage of all the available tax shelters. Advanced needs require more is required and the more you are willing to pay for the additional services. Before even thinking about interviewing the first candidate you should prepare a needs assessment. Determine what it is you are trying to accomplish, what type of advisor would be suited for that job and what type of relationship you expect to have with said advisor.
Today financial products are “sold” rather than purchased out of need. the insurance agents and even a few stock brokers use the hard sell, scare tactics to drive sales of a particular product and it is only later, sometimes years later that you realize you never really needed what you bought. Knowing what to expect is also crucial. Most people think they know the functions of a financial advisor and if your are one of them it would still do some good for you to research exactly what it is a financial advisor can and cannot do. What you desire must match what the advisor is offering or it will be a dissatisfying relationship.
Affordability is also an issue and the truth is you can get free financial advice from the IRS and some community agencies that is just as good as that of the high end advisors who charge large fees even for a consultation. You definitely want to steer clear of the ones who take a huge chunk of the assets that they are supposed to be helping you to safeguard. Bernie Madoff could not have did what he did if people were not trying to buy advice above their means. He looked and talked high end and offer to work for less only to take the shirts right off the client’s back. This need not happen top you.
A lot of people think ” well that is not so hard” and they try to do it themselves. There is nothing wrong with that. But remember you can lose all you have if you are unaware of some statue or law that needed to be addressed. Just because you know it is your gall bladder that is the problem you still are not qualified to fix it, nor would you even try. You go to doctors and surgeons because you know it is their job to know how to do those things. You trust their training and education in these matters. So too, you seek out a professional money manger. They are educated and trained in the way the money flows and how to take advantage of the tides.
There are seven common mistakes that are made when seeking to hire a financial advisor. Listing them here is an attempt to give you a heads up on what not to do or leave undone.
1. Only interviewing one person for the job. This is never a good sign. The ideal is to interview several candidates before making a final decision. And one candidate should be from a purely independent source. Do not only interview people that work with people you know. This comes with baggage and preconceived notions.
2. Never fail to do background checks. A lot of people take at face value that because this one is in the paper as a columnist or on the radio or TV as an expert that they are good at what they do. Check out whether or not these people have complaints against them. Everyone has some but what are the predominate nature of the complaints and the volume these will have a bearing on your decision.
3. Basing the search on cost alone. Although cost is an object it should not be the object of your search as with most things in life you really do get what you pay for. If you save a few dollars and the advice cost you thousands what have you gained. The cinch here is that you pay now or possibly pay later.
4. Thinking that credentials and letters behind a name makes for a good advisor. Credentials tell only a part of the story. You can have all the best credentials and still not know what you are doing. It says nothing about the personality, manner or disposition of the person and remember even the person who graduated at the bottom of the class has the same credentials as the top three. If you needed a lawyer do you want the one that graduated number 599 out of a class of 600.
5. Having unreasonable expectations. Deciding that an advisor is good or bad based solely on returns is a disaster waiting to happen. Remember it is about long-term goals and it is possible to reach those goals even if every year is not banner year you were expecting.
6. Giving the advisor full control. That is how Mr. Madoff was able to do what he did so effectively. You relationship with your advisor is one of partnership. Although he/she may have the expertise never forget that it is still your money. If you do not understand something they plan then halt proceedings until you do. And it is perfectly okay for you to tell them no.
7. Hiring friends, relatives or friends of friends and relatives. This never ends prettily. It is like the old saying, ” the fastest way to lose a friend is to loan them money”. This is true of the hiring as well. I think you get the point.
These are just of a few of the mistakes that are made when looking for the right financial advisor. You would not choose a doctor or lawyer or even a plumber without knowing they had a good reputation and verifiable successes why would you trust your finances to someone you chose with less care.