Find a financial advisor
Hopefully you are not the investor who decided they had had enough and sold at or near the market lows this year. Do you have a long-term investment horizon of 15 years or more, but have cash stashed away in “safe” CDs and money markets? Can you afford to invest in a CD or bond paying 1-3%? Inflation and taxes will eat up most of your earnings. You need to find a good financial planner to guide you through today’s complicated world of investing.
What is the role of the money you would like to invest?
Before you find a financial planner, know what you want to accomplish with your money. Is this short-term money that you can’t afford to lose, or is it long-term money that you can use to invest? Knowing what you want your money to accomplish is the first step to successful retirement planning.
Interviewing your financial planner
The best way to find a financial planner is to ask one of your successful friends, colleagues, or co-workers for a referral. Once you’ve gathered a list of a few financial planners, it’s time to schedule a meeting. Any good financial planner will hold an introductory meeting at no cost. Remember, this is your time to interview the candidate who will hold the key to your long-term financial success. You should think of this as a job interview. He’s looking for the candidate who will make his money work harder and give him the best long-term return.
Find out how they get paid
Financial planners can be compensated in a number of ways. You want to be sure you are being advised with your best interests in mind, not theirs. Financial planners are sales people, so they must be licensed and accountable to an oversight organization.
– Direct Commission: This has traditionally been the most common way financial professionals are compensated. When you buy an investment, a percentage of your total purchase will be deducted from your investable assets and a portion of that will go directly to your advisor.
– Flat Fee: Another common method of compensation is through a flat fee. Some will charge an hourly rate or may charge a lump sum fee to put together a financial plan for you. There is usually little concern of a conflict of interest as they get paid whether you buy any investments or not.
– Fee based on total assets: Some financial planners charge an annual fee that is based on a percentage of the assets you have invested with them.
It is your responsibility to find out how your financial provider is compensated and determine if your compensation is in line with what you are trying to achieve. Personally, I prefer to pay my advisor a fee based on total assets. In this way, your advisor is your investment partner. The more successful you are, the higher your advisor’s compensation.
During the Interview
You want to spend at least an hour or maybe two interviewing your advisor. A good advisor will ask you to do some homework before you sit down and talk with them.
Cash Flow Breakdown
Where exactly does your money go? You’ll need to have some semblance of a running budget to develop reasonable savings goals.
Statement of net worth:
This is a list of everything you own; your assets minus your liabilities. Obviously, this is essential in determining your investment and estate planning needs. For example, you may not have enough in your emergency fund. In this case, a good provider will tell you to save more before you spend a dollar with them.
Asset Allocation Breakdown: A map of where your money is invested now and how it should be invested. The portfolio must include retirement and non-retirement accounts and must be diversified across many asset classes: US, foreign, small, large and mid caps, emerging market stocks, bonds, cash and real estate.
Retirement Strategy: A plan for reaching your retirement goals, including an estimate of how much money you’ll need to retire comfortably. You need to know when you have reached your goals.
Education Strategy: A plan to help pay for your children’s education, if applicable. This could include separate accounts for state college savings plan accounts.
Tax Analysis: Suggestions to reduce your taxes. For example, converting to a Roth, IRA, or taking steps to make sure you’re being tax efficient. This could have a big effect on your retirement.
Insurance Recommendation – A recommendation on the amount and type of insurance you need to reasonably cover you and your family in case of emergencies.
Can I invest my money now?
You’ve interviewed and found the right financial planner. Trust the plan they have developed for you. Is it time to send them a check and start the paperwork? Not yet. Before you hand over your hard-earned money and investments to your financial planner, you need to do some extra homework. Do they have a license to sell financial products? Are they registered on FINRA.org? You also want to check if there have been any complaints or disciplinary actions against you by visiting The Certified Financial Planner Board of Standards website. www.cfp-board.org. You want to do all your due diligence before trusting someone with your hard-earned money.
Bedside manner?
Lastly, don’t forget about things like personality and reliability. Ask the person who referred you how trustworthy is your financial planner who diligently returns calls and takes you by the hand. Just as doctors may have different bedside manners, so can financial planners. Having a great relationship with your financial planner will allow you to sleep better at night and therefore lessen the chance of making a move you really shouldn’t.