Is it absolutely necessary to consult with a professional about managing your money? No, not really. You can totally go it alone. But, that doesn’t mean you should, especially if you know very little about this subject, and are not exactly enthusiastic about educating yourself on such matters. Working with a financial advisor can save you precious time, and give you information and advice that helps you make informed decisions about your finances; they will encourage you to make decisions that you would likely put off indefinitely on your own. Here are just a few points to consider in your search for an advisor.
Before giving anyone serious consideration, there is one credential for which you must check before you go any further in your evaluation of this particular person. Only consider someone who is a certified financial planner (CFP.) Of course, don’t just stop there—while having this certification signifies credibility, that in and of itself does not mean this person is the best fit for you.
To take it one step further, you might consider putting together your list of candidates from people who belong to the National Association of Personal Financial Advisors (NAPFA.) These professionals operate on a fee-only structure, meaning they are not getting commissions from products they sell you, like mutual funds or life insurance policies.
Beware of Extravagant Claims
When deciding on a financial planner, be wary of anyone making bold claims about their skills in beating the market averages. There are very few people who do this consistently, like Warren Buffet. Most people aren’t him. Anyone making this sort of guarantee is someone from which to walk away.
If you are a ‘regular’ person who is not managing any sort of multi-million dollar portfolio, and just need someone who can answer a few questions for you, check out the Garrett Planning Network, a group of financial advisors who offer guidance on smaller projects for a reasonable hourly fee.
Many financial planners work on this flat-fee type of structure, regardless of the client, where they are paid a set rate for a consultation or their time in putting together a recommendation. There is very little conflict of interest here, as they are getting paid no matter what you do or don’t do with their suggestions.
Financial advisors who work on commission may be inclined to push certain products on you because of the compensation they may get, not because it is the best product for your needs.
Then there is a fee-based structure dependent on assets, which is not exactly perfect either since a particular planner may have ulterior motives for advising against liquidating investments, or using a large chunk of your money for a purchase, such as a house—the less of your money they are managing, the less they make off of you.
Be on the lookout for a fiduciary—this means the advisor pledged to act in your best interests; planners who are not fiduciaries are simply held to ensuring what they sell you is suitable for your circumstances, but not necessarily in your best interest or the most ideal for your needs and goals.