Sunday, October 8, 2017

6 Tips to Help You Find the Right Financial Planner

Managing personal finances is sometimes difficult. People take the help of financial consultants when they couldn't manage it themselves. We call the consultants financial planners, and sometimes, financial advisors.

The two terms are not synonymous, though. Financial advisory is an umbrella term, which includes financial planning. A financial advisor helps people invest in the stock market, acts as a broker to settle a deal, delivers tips for a lawsuit, etc.

A financial planner, on the other hand, only helps individuals and organizations in taking care of their finances. 
You can see the basics of financial planning here.

Ask for certifications

According to Financial Industry Regulatory Authority (FINRA), anyone can call himself a financial planner. What it means is a complete charlatan might pretend to be a financial expert, and you may end up visiting him for financial advice.

Nevertheless, if someone wants to introduce himself as a financial advisor, then he’d have to obtain some certification. The National Association of Personal Financial Advisors or NAPFA keeps a registry of financial advisors. As far as its claim goes, there are over 100 certifications, any of which a financial advisor could obtain. 

Hence, if you ever visit a financial advisor, ask him to produce his credentials. He should be having certifications proving his sanguinity. If he couldn't produce them or give flimsy excuses, look for another one.

Fee structure

Select a planner, who asks for a flat rate fee. Planners, who prefer a commission based fee, may not work in an unbiased manner for their clients, as they are paid only when a product is sold. Because of this, they might prioritize the sale of the product, and not client’s interest.

Those, who ask for an hourly rate fee are like attorneys. They are extremely professional because the money they charge is not for the advice delivered, but for the time taken. Some lawyers accept an annual fee, which might be as high as 1-2% of your total assets.

Some financial planners limit their services to people, who are quite rich. More often than not, such planners offer investment related advice and secure a percentage in the return. 

They don’t accept clients, who don’t have enough money to invest. The minimum cap for qualification is $250000. If you are not opting for a large-scale investment, don’t go to them.

The planner’s credentials

In technical terms, it is called fiduciary. If a planner has fiduciary, that means he has pledged to serve the best interests of his client irrespective of situations. If a planner is not a fiduciary, then you have reason to doubt his authenticity. Investment professionals without fiduciary are presumed to lack the sustainability standard.

Simply put, they might offer you advice, which are attractive from a shallow angle, but not so in the long run. Ask the planner upfront whether he’s a fiduciary, don’t hesitate. 

Another thing to ask is whether he’s ever been put under an investigation carried out by any investment regulatory council. Such investigations are conducted only when a person is accused of serious charges.

Promotion through predictions

A financial planner working independently is always on the lookout for new clients. Someone visiting his office is a prospective lead, who might turn into a sale. To impress him, the planner might make predictions, which he couldn’t back with evidence.

The predictions made by such planners are mostly on the stock market. If your planner tells you to invest in a stock because he believes he’ll show a market-beating performance, leave his office, and start looking for another planner. 

That’s because the stock market is highly volatile, and nobody could correctly predict what’s going to happen.

Area of specialization

Not every planner can help you. Check the planner’s area of expertise. Some planners work in specific areas, such insurance or socially responsible investments. 

If you want solutions related to IRA conversion, and if a planner has reputation in areas such as stock market investment, then there’s no point going to him.

Sometimes, planners focus on clients on the basis of age. A planner, who is more than 60 years of age and has his own business might focus on people who are on the verge of retiring or business people themselves.

Technicalities aside

Financial planners often use technical jargons, the meaning of which is hard for a naive people to comprehend. If a planner uses any ambiguous term, ask him to elucidate its meaning. Make sure you know the meaning of every word, coming out of his mouth.

Follow the tips

And it’ll be incredibly easy for you to find the right financial planner, who’ll provide you with all the help you want.

What do you think of the tips shared here? Do you have any tip of your own? Share with us by posting a comment.

James Paul is the blogger at Basic Finance Care that covers best tips on budget management, frugal living, money saving, credit score improvement and more. He is also a contributing writer at Finance Guest Post - a community for personal finance blogger.

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