This is part four in a series of articles for beginner investors. The first three parts covered why you should invest, types of investments, and the importance of diversification. This article covers finding and hiring a financial advisor.
When it comes to money management, it can feel as if there are two camps: the top hat and monocle-wearing uber-rich types who pay other people to worry about their money, and the rest of us who have to slog through money decisions on our own. Thankfully, nothing could be further from the truth. Every investor, no matter how modest the budget, can benefit from the help of a financial professional. And if you would rather clean your driveway with a toothbrush than make big money and investment decisions, help is available for you!
Types of Financial Advisors
Depending on your needs, there are several different professionals out there who can help you to reach your goals.
For general money advice—including anything from investments and retirement to life insurance to savings to taxes to estate planning—a Certified Financial Planner (CFP) is your best bet. These financial jack-of-all-trades are a great resource for the average investor, as they can help you to get a good overall look at your entire financial picture.
Financial Planners will generally offer you a free first meeting, during which time you can ask questions about how they can help you reach your goals. From there, advice from the planner can either be charged hourly (a good idea if you have just a couple of specific questions), by the project (great for those who need help in only one area), or on retainer (for those who are looking for a long term relationship).
Although anyone can call himself a financial planner, a Certified Financial Planner is a title regulated by the CFP Board and those professionals must abide by standards of practice and a code of ethics.
This is the sort of money manager that most individuals think of when you mention getting investment help. Stockbrokers (also known as investment managers or wealth advisors) work to maintain the best possible returns for your investments.
In most cases, using a stockbroker is for relatively high rollers—those who have a portfolio of anywhere from $50,000 to $100,000 or higher. That’s partially because you will be paying around $100 to $200 per stock trade, which is too rich for many casual investors’ blood.
If you are willing to do your own research, you can use the services of a discount broker—that is, someone who will do the trading for you at a lower fee than that of a full service broker. Discount brokers generally charge less than $10 for an individual online trade.
Sometimes, you need help in a very specific area. Want to figure out how to leave all your money to the whales? Want to know which 529 plan will be best for your kids? Want to figure out how to minimize your small business’s tax bill? In each of these cases, a generalist might be able to help you, but for the absolute best advice, find someone who specializes in the area where you need help.
However, it could be financially dangerous to simply hire anyone who has put out a shingle for services. This is where getting a reference from your CFP could be invaluable.
Research Before Hiring
It is always a good idea to do a background check or otherwise research an individual or company before hiring them to help you manage your money. The best place to start is by doing an online background check on the financial advisor, which you should be able to do for free with just a few minutes time. If you are satisfied with what you find online, then it’s a good idea to interview the financial planner to understand how they get paid, their investment philosophy, how they can help you, and whether or not you are comfortable with the individual or company. If something just doesn’t feel right, then don’t be afraid to look elsewhere.
When to Call in for Help
It can be tough to know if you’re ready for a financial advisor. Many people wait until they have a major life change to call in the big dogs. There’s nothing like getting married, having a baby or changing a career to make you realize it’s time to get your finances in order. And there’s absolutely nothing wrong with that kind of timing.
However, if you ever feel like you don’t know what more you need to do in order to maximize your financial goals, then schedule a meeting with a pro then and there. It will help you to find a direction or give you the peace of mind to know that you really are on the right track.
To be honest, I think I will always be a little phobic about investing. As a very risk-averse individual, I’m always worried about making the wrong decision. But I know that my financial health depends on my ability to take that plunge. So I’ll test the waters and learn to overcome those fears.