If you are baffled by your finances, you are certainly not alone. Millions of otherwise intelligent men and women find dealing with their finances a daunting task, and many of them turn to professionals to get the job done. In some cases, working with a financial advisor can make sense. There are times when a little professional advice and hand holding is more than warranted, but for others the guidance is worthless and even counterproductive. Here are some key questions to ask before you engage the services of a financial professional.
Do I Really Need a Financial Advisor?
For many ordinary workers, hiring a financial advisor may not be the right choice. There may be other, less costly, options available. For those saving for retirement, a simple low-cost index fund could take the guesswork out of investing, and largely eliminate the need for a financial advisor. Before you hire anyone to help with your finances, ask yourself if that help is really warranted. If the answer is yes, by all means go ahead. If no, you could save yourself time and money.
What Kinds of Services Do I Need?
There are many reasons to hire a financial advisor, and it is important to think about what you are looking for and what you hope to achieve. Some people hire a financial professional to deal with an unexpected inheritance or sudden windfall. Others seek help with things like insurance and liability protection. Still others need help with their retirement planning.
Before you interview a single investment professional, think about the services that are most important to you. Once you know what you are looking for, you can focus on the services you need and hire the financial advisor who is best able to provide them.
Does the Advisor Take a Holistic Approach to Client Finances?
If you are hiring a financial advisor for a short-term need, like determining the optimal insurance coverage for your business or the best way to handle an inheritance, a targeted approach may be all you need. But if you are planning to work with a financial advisor long term, a holistic approach may be more appropriate.
Some financial advisors are highly targeted, honing in on things like investment returns and retirement planning. Others take a more holistic approach, incorporating things like life insurance, liability protection and other factors into a much larger picture. If you want to choose the best advisor, it is important that their approach is a good match for your specific needs.
How is the Advisor Paid?
Before you hire any financial professional, it is important to know how the individual is paid. The answer to this question can be critical, as some payment plans could create conflicts of interest.
Some financial advisors work on commission, receiving payment based on the products and services they sell. If the advisor is paid in this manner, it can be hard to know if their recommendations are truly in your best interest, or if they are steering you toward investments that will make them the most money.
Other financial advisors are paid directly by their clients, avoiding potential conflicts of interest and serving as fiduciaries for those they serve. These fee-only financial advisors represent a minority of the industry, but they are definitely worth seeking out.
Is the Advisor Willing to Provide a Free Consultation?
Whether the advisor you are considering is fee-only, fee-based or paid on commission, it pays to ask for a free consultation or introductory meeting. After all, you trust this person with your finances, and it is important to have confidence in their judgment and their services.
If the advisor does agree to a free consultation or meeting, try to make the most of it. Come armed with a list of your existing investments, as well as any financial documents you think may be important. The more prepared you are, the easier it will be to find a financial advisor you can trust.
If you are thinking about working with a financial advisor, it is important to know what to look for. Finding a financial professional you can trust is no easy task, and you do not want to rush into such a critical decision.