Finding Advice For Funds
Where can an average person get good financial advice? The Early Show's financial advisor Ray Martin has a few words of wisdom.
First, before hiring a financial planner, make a list of significant changes in your life, such as: Do you see yourself getting married soon? Are you going to buy a car, home or other large purchases? Will your children be attending college soon?
This will help determine your financial situation and set financial goals. Martin says once you have determined that, a financial planner can be a great asset. A good financial planner will be able to identify concerns you may have overlooked.
Martin says a good planner also should be able to help you identify what's not suitable for you, and they should tell you what financial products and services to avoid.
Finding a Financial Planner
First, you want to make sure your planner is a certified financial planner (CFP). No government regulations exist for financial planners, so anyone can claim to be one. But there are several referral services that can help you find certified financial planners.
The following organizations have more information on CFPs:
The Financial Planner Association
The National Association of Personal Financial Advisers
The Society of Financial Service Professionals
Don't be misled! A certification does not make a qualified financial advisor. Martin says one of the best ways to find a financial planner is by word of mouth. He recommends asking people you trust for financial planner recommendations.
Others who might be able to recommend a good planner are your accountant, lawyer, mortgage broker or other financial specialist. They know your financial situation better than almost anyone, Martin points out, and financial planners often work with them to carry out a client's plan.
Research the Financial Planner's Record
Laws require brokers, advisers and their firms to be licensed or registered, and to make important information public. But it's up to you to find that information and use it to protect your investment dollars. The good news, he says, is that this information is easy to get, and one phone call or Web search may save you from sending your money to a con artist, a bad broker or disreputable firm.
Before you invest, make sure your brokers, investment advisers and investment adviser representatives are licensed to sell securities. Martin says to always check and see if they or their firms have had run-ins with regulators or other investors.
This is very important, according to Martin, because if you do business with an unlicensed securities broker or a firm that later goes out of business, there may be no way for you to recover your money - even if an arbitrator or court rules in your favor.
Martin says the following are good resources:
The Securities and Exchange Commission (SEC)
National Association of Securities Dealers
Questions to Ask a Prospective Planner
Once you find an adviser, you should have them provide references from current and past clients and consider asking them several questions to protect yourself, such as:
Martin says the last question is very important because a good financial adviser does more counseling than selling financial products. He says you want an adviser who is going to put your needs first, and not the bonus he makes by selling certain mutual funds or insurance. One of the most important indicators of trust, Martin says, is how the planner gets paid.
There is no right answer to how a financial planner should be paid. Different methods work better for different people. Here are some ways financial planners make a living:
- Commission: The planner receives a commission for each financial product sold to the client, such as insurance, mutual funds, limited partnerships, or stocks and bonds. Critics argue that this approach creates a conflict of interest because the planner may push products that might not be in the best interest of the client. However, commission-based fees may be much more affordable for moderate-income clients.
- Percentage of assets: In this case, the planner receives a percentage (usually 1 to 1.5 percent) of the assets under his or her management. This solves the problem caused by commissions; however, this system could motivate your planner to keep more of your assets invested than necessary or practical.
- Percentage of total assets: This is the same as percentage of assets, except the planner receives a percentage of the client's total assets. The argument here is that the planner provides advice on many aspects of the client's finances outside of the assets he manages.
- Hourly fee: The planner receives an hourly fee. Martin says there are a couple of problems with this scenario. Since hourly fees are typically $150 or more, it could become cost prohibitive, and the planner might be motivated to perform unnecessary work.
- Flat fee (or retainer fee): The planner charges a flat fee for the year based on the size and complexity of a client's finances. Martin says this eliminates most problems with other fee structures; however, a planner could potentially do as little as possible to maximize his own profits.