Finding the right financial advisor to manage your portfolio and take care of your retirement planning, insurance, investments and taxes, is a difficult task and one that is most prone to wrong judgment. The right financial advisor can greatly increase your monetary resources and multiply investment profits while the wrong one can make you lose your hard-earned money. Use the following information and guidelines to take the right decision and free yourself of concerns about mismanaged finances.
What are the different types of financial advisors?
Investment Advisors: They are professional firms or individuals who advise you on investment matters; manage trust funds, pension funds and your personal investments like stocks and mutual funds.
Financial planners: They offer investment advice and help you with savings, taxes, insurance, estate planning and retirement.
Brokers: They buy or sell stocks, mutual funds and bonds for you as per your instructions.
Selecting the right investment advisor
Investment advisors are usually most suited to people who have liquid assets of over $250,000. Your friends and family can be the best source for getting recommendations about good investment advisors and financial planners. Carefully analyze your requirements and consider the following considerations before making a decision.
Hiring Considerations
Experience: Before you hire a financial advisor, consider his or her experience in financial management, educational background, methods of compensation and disciplinary actions or complaints against the advisor. In US, ‘form ADV’ will provide you this information. Additionally, look at the acronyms that appear with advisors’ names to get an idea about their educational qualification and experience. CFP (Certified Financial Planner), ChFC (Chartered Financial Consultant), PFS (Personal Financial Specialist), CPA (Certified Public Accountant) and CFA (Chartered Financial Analyst) are the common acronyms you may encounter.
References: Always ask for references before hiring a financial advisor. Inquire about advisor’s performance, salary and problems faced before making your decision.
Present Clients: Inquire about the present clients of financial advisors and the amount of money invested by them. A number of big business clients with large monetary investments are usually reflective of advisor’s good performance.
Registry and License: Ask prospective financial advisors about the place where registered and if they have all the requisite licenses.
Services Offered: Ask prospective financial advisors for the types of investment services they offer, and if you need to invest a minimum amount in offered services.
Pay: Ask financial advisors about how they get paid. They charge a percentage of the asset value, a fixed or hourly fee, or a combination of the two. It is in your best interest to compensate the investment advisor on performance basis. Be wary of investments where you have to pay a large upfront fee to the advisor or a heavy withdrawal penalty.
Before you meet financial advisors, carefully assess and outline your requirements. In your first meeting, make sure to ask investment advisors’ about what makes them more proficient than others in their field, how they will assist you with your investments and the manner in which their investments have performed in the past ten years. During subsequent meetings, ensure that they learn about your tax situation, fiscal health and long term goals.
Know how to evaluate your advisors
After you hire an investment advisor, make sure to evaluate his or her performance regularly. Here are standards you can use to evaluate advisor performance.
Review performance: Regularly review investments advocated by your advisor to evaluate their effectiveness and profits. Evaluate portfolio performance with regard to investment goal and risk tolerance for invested assets. Use a proper benchmark or metric matching your investment strategy, such as market index for stocks, for various assets.
Cost-benefit ratio: Even with high returns on investment, make sure you do not pay your advisor for more than the money’s worth. Ask yourself if you are paying more than you thought for your investment return.
Quality of investment recommendations: Assess your advisor’s knowledge of new investment approaches, determination to stay above the rest in the market and insights or suggestions on latest investment strategies.
Working relationship: Regular communication is a critical benchmark for evaluating advisor performance. Proficient investment advisors will schedule regular meeting with you and keep you up-to-date about your investments’ status.
Personalized service: Your advisor should regularly review your investment goals and preferences, and modify investments accordingly. Be wary of investment advisors who heavily rely on software programs to create your portfolio.
Remember, your advisor may just be the single most important person for your money growth or loss. So take your time to thoroughly analyze your requirements and advisor’s capabilities and knowledge to take the right decision.
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