How to Choose The Best Financial Advisor/Planner for You

hiring the best financial advisor

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You knew one day it would come.

Retirement planning has been something you have postponed for too long but knew that you would eventually have to face the music.

That time has finally arrived: you need to choose a financial planner/adviser to guide you through the complex maze of investing. It can be an overwhelming process trying to choose the best financial advisor to hire for you–and that’s the key: “For You“.

The absolute most important item is making sure you can find someone you can trust.  But is it really that easy?   How do you avoid hiring the next Bernie Madoff? . Given recent headlines about Ponzi schemes and fraud, you may be wondering – how can you avoid getting duped by a shady financial advisor?  The key is being better informed and doing some homework. Here’s some tips on helping you choose the best financial advisor for the job.

1. Find out how long they have been in the business

I don’t know about you, but I’m not extremely comfortable letting a newbie handling my retirement dreams. You don’t need a 20 year seasoned veteran, but you want somebody who has some experience in financial planning matters. Somewhere in the 3-5 year range should suffice, but also get an understanding of what they’re upbringing is. If they are a third generation financial advisor, then it might just be in their blood.

2. Make sure they are CERTIFIED

The financial services are laden with alphabet soup after their names. Even I have three certifications, but only one that really matters. If you are looking for a serious financial planner, then make sure you find one that has the CFP® designation. One who has taken the extra effort to become a CERTIFIED FINANCIAL PLANNER™ are held to a higher standard that your typcial financial advisors. A CFP® must adhere to the CFP Board’s Code of Ethics and Professional Responsibility and Financial Planning Practice Standards.

In the summer of 2009, there were more than 60,000 CERTIFIED FINANCIAL PLANNER™ certificants. In an average year, the Certified Financial Planner Board of Standards, Inc. conducts about 80 ethics code investigations. This means 99.9% of CFP® practitioners are abiding by the Board’s ethical and behavioral standards.

3. Do a background check

Remember when you were younger and you could always hide your grades from your parents? That was until the report card was sent home. The U4 is the “report card” of your financial planner’s background. That means if he’s done anything wrong and a complaint has been filed against him, it will be shown here.

By asking the financial planner if there’s anything on his U4, you’re finding out if he’s committed any wrong-doing. The best part is that if you don’t believe the financial planner’s answer, you can always log on to finra.org to find out if the financial planner is telling you the truth.

It’s amazing the percentage of people that don’t do a background check on a financial advisor before they hire them. If you want to check out an investment advisory firm, visit the SEC’s website. That is the website at which the Securities and Exchange Commission keeps Form ADVs – the forms which reveal disciplinary actions taken against that advisory firm and/or its key employees. You can also make sure a firm is properly registered there.

If you want to check up on a specific investment adviser, go to the FINRA BrokerCheck website tool. Here you can learn about the professional backgrounds of advisers and firms through the Financial Industry Regulatory Authority.

Now that we’ve mentioned that, let’s accentuate the positive. Visit the websites of the Financial Planning Association and the National Association of Personal Financial Advisors. Search functions on both sites will allow you to find a respected independent financial adviser near you.

4. Find out their investment philosophies

Do you want an advisor that believes in a buy and hold strategy or someone that has more of tactical approach?   Maybe you have a interest in a socially responsible investing and want someone to keep you abreast of its everyday happenings.  If that’s the case, then you better make sure you find the right person for the job. Ask specific questions on the investment strategies that they have implemented in good times and bad.  They should be able to show you some examples of portfolios that have been used with other clients in a similar situation.   The interview process is all about fact finding, so find out as much as you can.

5. Completely comprehend how they are compensated

You would think that this would be a common question. But many folks feel that it’s impolite to ask how much a financial planner charges. If you were getting your car worked on, wouldn’t you ask the mechanic how much it was going to cost? If you go see a lawyer or CPA, you know how much you are being billed.  Why is hiring a financial planner any different? Don’t be shy in asking this question.

There are many different ways that financial planners make money. They may be commission-based, fee-only, fee-based — or a combination of the three. Asking what the planner charges will help you know exactly what you are paying throughout the working relationship. If she explains but it still doesn’t quite make sense, have her put it on paper so that it’s crystal clear.

Lean Towards Choosing Independence

When you search for an independent adviser, you have a better chance of finding someone who gets paid for their advice and/or their fee-based asset management, instead of deriving the bulk of their income from trades or product sales. Many of these independent advisors set flat or hourly fees for specific services. Some earn a fee that corresponds to a small percentage of the invested assets they manage for you. If your portfolio does well, they do well.  Once again, make sure you completely understand how how they get paid.

7. Know how important you are to them

If you have an annual check up from your doctor, would you expect the same from your financial advisor? How about twice a year? Every quarter? One of the biggest breakdowns in any relationship is communication and this is no different. If you expect to hear from them a least once a month, then let them know that. That way your expectations are clear from the onset. If they over promise and under deliver, it’s time to starting looking for another financial advisor.

Choosing The Best Financial Advisor

A good and conscientious financial advisor will meet with you at regular intervals and assist you to adjust your financial strategy in response to life changes and changing objectives. He or she will communicate with you in a forthright, open way – and that includes returning your calls or e-mails within 24 hours.

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