- People who work with a financial professional tend to get better investment returns.
- The more complex your financial life is, the more you may benefit from professional guidance.
- An advisor can keep you from making emotion-driven decisions that could cost you money.
We routinely turn to professionals to help us with tasks we can’t or don’t want to do ourselves. We go to a doctor when our body needs help. We take the car in to a mechanic when it’s not running well. We consult with a contractor when we want to remodel the kitchen.
But when do you call in a pro to help you manage your finances? If your financial life is fairly straightforward, there are lots of online resources that can help you manage a household budget and save for some basic goals. Here are a few reasons that might spur you to call in a financial advisor:
- Financial complexity. If you’ve accumulated significant assets, and your short-term and long-term financial goals are multiplying, you may want some advice on how keep it all in focus. Balancing income, debt payments and multiple savings accounts can get complicated, and improvising is generally not a good recipe for long-term success.
- Major life events, such as marriage, divorce, the birth of a child, a death in the family or buying a home. These big events can have major impacts on your financial planning. The emotions surrounding these events may make it harder for you to be objective in your decision-making.
- Lack of time. While there are plenty of apps and online resources that can help you manage your finances, set up household budgets, calculate retirement needs and more, it takes time to do it all yourself. If time is a concern, consider outsourcing the job to a pro.
- Lack of confidence. Many people just don’t have the confidence or desire to make financial and investment decisions on their own.
How to find the right advisor
Start by asking friends and colleagues for referrals. You can search for financial advisors in your area at The National Association of Personal Financial Advisors (NAPFA), a leading professional association of Fee-Only Certified Financial Planners. Also visit the Financial Planning Association and the Certified Financial Planner Board of Standards for more information and to search for candidates.
Once you’ve whittled down your list of candidates, it’s time to get to know them with a personal interview. This is an important decision so treat it like you’re an employer running a job interview. You’re looking for a good fit, taking into account professional credentials, experience, philosophy, and personality. Here are six questions to ask during your interviews.
1. How long have you been an advisor? Experience is important because you want someone who has been through both good and bad financial markets.
2. What certifications do you have? There’s a veritable alphabet soup of financial certifications. Review the differences and ask your candidate what her certification allows her to do.
3. What services do you offer? Some advisors only sell certain products. Others may work with a broad range of products and services, including insurance. Does the advisor only recommend investment products or does she also do comprehensive financial planning?
4. How do you get paid? Fee-only advisors charge by the hour or as a percentage of total assets they are managing. Fee-based advisors may charge hourly rates or a percentage of assets plus they may receive commissions on products they recommend. There are other fee arrangements, as well.
5. What’s your financial planning philosophy? Will she take a holistic approach that considers all aspects of your life including non-financial factors like your social and cultural preferences, or just focus on dollars and cents? Does she take risks or is she more conservative in her approach? Does she share your life values? Also, get a sense of her ethics.
6. What’s your track record? You’ll want a general sense of how clients similar to yourself fared during different economic times.
Before you leave, ask for some client references, both past and current. Find out how often the clients consult with the advisor, how quickly and thoroughly she responds to questions, and if they are happy with the performance and service they are getting. Finally, ask the advisor if she will provide a written agreement that spells out all services, expectations and costs.
Keep your emotions in check
Over 15 years of research, testing and analysis, investment management company Vanguard has found that people who work with a financial advisor tend to get better investment returns. But the way an advisor can add the most value is by keeping their clients’ emotions in check. Getting objective, factual advice can prevent you from taking unnecessary risks or making the common fear-based mistake of “selling low and buying high”—the exact opposite of a successful investment strategy.