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FYI
There are some very specific questions to ask prospective advisors BEFORE hiring. Asking these questions will make your decision so much easier. A complete list of these questions will be revealed in the May FinTip. However, until then, following are a few from the U.S. Department of Labor...
-Do you consider yourself a fiduciary?
- If not, why not?
- Are you willing to disclose any conflicts of interest?
- Do you earn fees or commissions based on the number of products that I buy or the size of my investment?
-Who supervises you, or, are you a sole practitioner?
Explanations to these questions and many more can be found in the next FinTip.
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, Greetings!
The financial industry can seem large and intimidating. In fact, one reason most Americans don't invest outside of their workplace retirement plans is because finding the right advisor is not easy (i.e., someone you can trust).
The only stories we see or hear about are the ones where investors were taken advantage of and ultimately lost all or part of their money. However, there are lots of great advisors, and you need to pick just one.
In the end, if you need an investment advisor, don't be afraid to pay that person...that is what he or she his there for. Just make sure you choose the right one to reach your financial destination.
This FinTip gives you the knowledge to choose the right advisor. As a reminder, BCH does not endorse or recommend advisors or investments. However, we share with you the information to choose the right person and/or company.
Sources include BC Holdings, US Department of Labor, Business Insider, The American College, Money, and the Wall Street Journal.
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Understand their expertise
...
Investment advisors have different areas of concentration and offerings.
Financial Planning - focuses on a variety of areas such as setting financial goals, insurance needs, estate planning (wills and trusts), retirement, and investing.
Investment Advisory - focuses almost totally on which investments to choose based on your goals.
Retirement Planning - focuses on marrying all sources of income to maximize tax advantages and to ensure that you don't run out of money during retirement (i.e., social security, retirement funds, investments, pensions, cash, etc.).
So, depending on where you are in your career, you want to choose the advisor who has the right concentration to meet your needs today.
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Make sure he/she is certified!
Having the right credentials is paramount in this industry. Like in all industries, some professionals are legit and others are out to take advantage of you.
It takes a great deal of expertise to guide your finances in the right direction. You are counting on this person to get you there, so you want to make sure he or she has the right credentials.
There are several distinctions an advisor can attain, and in some cases, he/she might have more than one. Following are a few of the most popular...
CFP - Certified Financial Planner: this certification covers insurance, investments, taxes, estate planning, and financial planning.
PFS/CPA - Personal Financial Specialist/Certified Public Accountant: this certification combines financial planning with tax planning.
CFA - Charted Financial Analyst: this certification is the most difficult and distinguished in the industry. Most of the Wall Street fund managers and advisers earn this certification. It takes several years to prepare to take this exam.
CIMA - Certified Investment Management Analyst: this credential involves being an expert in statistics, finance, economics, behavior finances, and diversified portfolios.
RMA - Retirement Management Analyst: this certifies expertise in building retirement portfolios using retirement age, goals, statistics, investment strategies and economics.
RICP - Retirement Income Certified Professional: this designation certifies advisers to analyse and create portfolios to fund retirement years along with maximizing the timing of Social Security benefits, pensions, annuities, investments, and cash.
CRC - Certified Retirement Counselor: this credential allows one to advise an individual on retirement planning including investments to ensure that there is enough money for retirement years.
The name of the game is to make sure your adviser has adequate training and credentials to provide the right services and results. You don't want to work with someone who received a licence by just paying a fee.
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How do they get paid?
Understanding how your advisor is compensated is very important! There are several ways to be compensated including commissions, hourly rates, a salary, fees, or a combination.
The way an advisor is compensated can influence the recommendations presented to you. As a rule of thumb...
- If you just want to purchase investments to hold for a long period of time (buy and hold), then you just need to pay a one-time commission or hourly rate (if you need assistance).
- If you want an active portfolio (where you are trading often) then a fee-based advisor might be more cost effective.
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Do your research!
Before hiring an advisor, devise a list of what you are looking for from this person. Then use the internet to find advisers to interview.
There are five sites to visit to find advisors who meet your criterion.
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NAPFA - National Association of Personal Financial Advisors: An Association of Fee-Only
- Garrett Planning Network - Financial Advisors Who Charge An Hourly Rate
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Verify Credentials...Always!
Always, always, always verify the credentials of your advisor...no matter who they are (i.e, family, friend, acquaintance, childhood buddy, church member, co-worker, etc.).
When you verify credentials, you are looking for a few things...
- Certification verfication
- Complaints against him/her
- Complaints against the company
- Lawsuits against him/her
- Lawsuits against the company
- Fines due to complaints
Sites to visit include...
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How to Prevent Being a Victim of Fraud?
The best way to prevent being a victim of the next Bernie Madoff is to place your investments with a
third-party custodian. What this means is that your investments and cash are held at a third-party company like Fidelity, AmeriTrade, BlackRock, MerrilEdge, Scottrade, etc., and your adviser uses that account to trade for you. This accomplishes a few important things...
- It takes total control of your money away from the adviser
- All transactions are reported to you immediately
- Signatures for transactions will be verified
- Advisors are limited from selling investments they own
Be aware that some investment firms will recommend a custodian whom their firm owns; this is what Bernie Madoff did. In this case, be very careful. In fact, it is just best to avoid it altogether. If they insist, then move on to the next adviser.
We are talking about protecting your hard-earned money! Don't be forced or bamboozled into a situation where you give someone
total control over your money.
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Choosing the right advisor can be arduous but well worth the time and effort to make sure the person and company managing your money is solid. You want to be able to sleep at night and feel comfortable that you are not being a victim.
Next month's FinTip will give you several questions to ask potential advisors
BEFORE you make a choice.
In the end, at BCH we live by the saying: D
on't hire anyone you can't fire
!
This is VERY serious business! Hiring someone who is close to you will make it difficult to change. Trust us; you don't want to be in that situation. So, hire a financial advisor who is not sitting across from you at Thanksgiving Dinner.
As we say...if you flaunt it, they will want it!
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Peace and Grace,
Sid, Saundra, and the BCH Family
BC Holdings LLC |
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