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Using Financial Advisors
Using Financial Advisors
Why you may want an advisor
Types of advisors to avoid
Professional designations and their meaning
Why you may want an advisor
Hire an advisor if you want
- Help on specific problems like taxes or estate planning
- Someone to do the paper work
- A second opinion
If you hire an advisor, try to stay with the same person
Jumping from advisor to advisor will leave you with spotty insurance coverage and a jumbled portfolio
Remember that most advisors who are willing to give you "free" advice are pushing commission products
Advisors are humans who make mistakes and may do a poorer job than you could do by yourself
Be aware of possible conflicts of interest
Don't put too much faith in a financial advisor
Types of advisors to avoid
Avoid market forecastors
- Many are like the broken clock -- only correct twice a day
- No one knows the future
Avoid commission-based advisors
Generally push products that pay the highest commissions and aren't necessarily the best for the customer
Some "fee-based" advisors charge you a fee and receive a commission
Look for "fee-only" advisors
Avoid percentage-of-assets advisors
May charge 1 to 3 percent of your assets to manage your money -- on top of what a mutual fund might charge you
3 percent of your assets is too high!
Include wrap account advisors who will select mutual funds or individual securities for you
As investors get smarter about load funds, brokers are moving to charge excessive fees to manage no-load mutual funds
To gain control of more of your assets, may discourage you from making investments that they can't manage
- May discourage you from investing in company retirement plan
- May discourage you from paying off your mortgage
If you need an advisor, consider hiring a fee-only planner
May charge $100 or more per hour
Professional designations and their meaning
- CEBS - Certified Employee Benefit Specialist (pensions, retirement accounts)
- CFA - Chartered Financial Analyst (mutual fund managers are often CFAs)
- CFP - Certified Financial Planner (often sell insurance on commission)
- ChFC - Chartered Financial Consultant (often sell insurance on commission)
- CIC - Certified Insurance Counselor
- CLU - Chartered Life Underwriter (insurance)
- CPA - Certified Public Accountant
- EA - Enrolled Agent (federal taxes; must pass 2-day IRS test)
- FSA - Fellow of Society of Actuaries (for pension, insurance management)
- MBA - Master of Business Administration
- PFS - Personal Financial Specialist (CPAs who also pass a personal finance test)
- RIA - Registered Investment Advisor (only need to file SEC papers and pay fee)