Most laymen find it daunting to navigate the complex world of finances. Even simple accounting can feel more like neuroscience for the mathematically and financially challenged. Thus, for some individuals, it might be wise to consider hiring a financial advisor rather than trying to “do it all.”
But the world of finances is tricky, and Wall Street has a bit of a reputation for ripping off the innocent and ignorant. So what should you do protect and grow your wealth?
Since you don’t have much in the way of financial skills, you can develop your question-asking skills so you are prepared when it comes time to interview experts to help manage your money. Before you hire a financial advisor, be sure to ask these five things.
1. Education and Certifications
Where did you go to college? Do you have any advanced degrees or specialties? Are you certified? Follow up your questions with some good old fashioned research. Nobody with a significant career can hide from the almighty Google search. Check out his or her LinkedIn profile for more details and background information.
Some specific certificates to look for include confirming that a certified financial planner (CFP) has been tested and tried with three years of industry work under his belt. Also consider that a chartered financial consultant (CFC) has the same education as a CFP but typically has less experience and does not subscribe to a standardized code of ethics. A chartered financial analyst (CFA) is the most experienced of these three.
2. Source of Income
A reputable financial advisor should be receiving income almost entirely from clients. If he or she is receiving commissions or bonuses on any investments, then this can be a serious conflict of interest. Financial brokers can and do receive commission on trades or investment, but you will want to avoid hiring a financial advisor who routinely receives these alternate sources of income.
3. Rate of Pay
In the past, financial advisors have taken a percentage of the assets and investments they are managing. Nowadays, it is more acceptable to ask for an hourly rate. This is in your best interest as it can significantly lower the cost of services.
4. References
Call up the other laymen a prospective advisor is working for and ask questions about their investments, how happy they are with the advisor in question, and if there is anything relevant you should know before hiring this person to manage your finances. Be as nosy as is polite; you’re going to allow this person to handle your money, and that’s a sensitive thing. It’s only right that you ask deep and sensitive questions.
5. Prior Performance
Before you hire this person, you want to know his or her track record. You can request the Form ADV, which will show you detailed accounts of how previous advice has helped or harmed clients through various economic climates. This form will also show you if there is involvement in anything illegal, semi-legal, or just plain shady. Disciplinary hearings, fraud, trading securities – it will all be there, going back at least five years.
So, in summation, Mr. Layman – do your research, go with your gut, and don’t let just anyone mess with your money.