Finding Financial Advisors If You’re Not Rich

It isn’t easy for a beginner to find a great pro for anything, especially when buying financial advice. When you’re “small potatoes,” relying on well-meaning peers is not the answer. Neither is throwing a dart.

So your colleagues are talking robo-advisors, AUM, fiduciaries, target-date recommendations and rollovers? And you recently read you should only use an advisor who:

  • has specific certifications or qualifications,
  • charges as “fee-only” rather than for investment products sold and
  • acts as a “fiduciary” as opposed to following the “suitability” standard.

But when you want to hire financial help, comparing the services is not so simple:

  • Financial vocabulary is complex.
  • Investment products change, new ones keep coming.
  • Too many differences in advisors and firms confound comparison…like comparing apples to oranges.
  • Fees that take a big bite out of your nest egg can go unnoticed in fine print.

Just how can you find a trusted professional who wants to work with you, if you don’t have much financial savvy or much money to invest…yet?

Craig Goettsch, Education and Budget Director for the Iowa Insurance Division, suggests understanding four things about yourself before investing:

  • What is your goal for investing?
  • How much risk can you handle?
  • Will you do some financial tasks on your own?
  • What investment products are suitable for you?

“Then, before handing over any money to a financial advisor, ask what the advisor will do for you and how he/she gets paid for providing those services,” says Goettsch, whose office helps protect consumers purchasing securities or investment advice. One tool he recommends is Cutting through the Confusion, free from the North American Securities Administrators Association.

All Advisors Get Paid Somehow

“Reputable advisors should have no qualms discussing how they get paid for giving financial advice,” Goettsch noted. There is no such thing as a free lunch – if your friends say they’re financial advisor is “free,” they don’t understand the fees charged.

Likewise, most advisors will also disclose whether they operate under the “fiduciary” or “suitability” ethics designated for their profession.

Basically, fiduciaries pledge to first and foremost recommend investments in the best interest of the client, rather than the best interest of the advisor. Other professionals follow the suitability standard, which means the investment product(s) recommended must be suitable for someone having circumstances similar to the client.

Whether advisors are fiduciaries or not can depend upon their certifications (check here).

Financial advisors can offer varying expertise and earn certifications for more than 110 professional designations. There are Certified Public Accountants (CPA), Certified Financial Planners (CFP®), Personal Financial Specialists (PFS), Accredited Asset Management Specialists (AAMS), Certified Retirement Financial Advisors (CRFA) and more. They all make money. And you have a right to know what it will cost you to use their services.

10 Questions You Must Ask

Before hiring a financial advisor to work with you, here are 10 key questions to ask, courtesy of the Certified Financial Planners’ Board of Standards:

  1. What experience do you have? Ask about number of clients served and work experience in investments, taxes, estates, insurance, and retirement planning.
  2. What are your qualifications? Ask about areas of specialty, education, years in business, and certifications or licenses held.
  3. What services do you offer? Financial planners usually are registered with state or federal agencies to be able to sell certain products. Some advisors do not sell products, only advice.
  4. What is your approach to financial planning? You should make sure your view of risk meshes with the advisor’s philosophy, and that your wishes will be executed satisfactorily.
  5. Will you be the only person working with me? Another, perhaps younger, associate may actually have your account.
  6. How will I pay for your services? It might be by fee-only, by commission on products, by fee and commission combined, by salary.
  7. How much do you charge? It can be an hourly rate, flat fee, percentage of assets under management, or by commission on products sold. For commissions, ask the typical percentages charged for stocks, bonds, mutual funds, annuities, and insurance products.
  8. Could anyone besides me benefit from your recommendation? In other words, is there an affiliation with a company whose products you offer me.
  9. Have you even been disciplined for any unlawful or unethical actions?
  10. Can I have it in writing?

Each state has an agency to keep track of advisors, and will help you check a financial advisor’s background. Iowans can contact Goettsch’s office – the Iowa Insurance Division at 515-281-5705 or toll-free 877-955-1212

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