We all make hundreds of decisions every day, from what we wear, to where we eat lunch. Many of these decisions are simple and don’t have a lasting impact on our lives. Some decisions are more important, like deciding to buy a house. A few decisions are so important we will feel the effects of them the rest of our lives. Choosing a financial advisor is one of those decisions: having the right planner can be the difference between having a long, happy retirement, and running out of money, dying destitute, and leaving nothing to your children.
A good planner is more than just an expert on finances and taxes – the right planner should feel like a friend you can share your hopes, dreams and fears with. The job of “financial planner” is just as much about teaching and counseling as it is about investments, taxes and insurance.
The very first thing you need to do before you look for a financial planner is to educate yourself on how the financial services business works. Just about anyone can call themselves a financial planner. Financial planners have varying qualifications, education, and professional licenses. A potential advisor should be able to explain how their education, experience and professional credentials are relevant to your needs, and how they will help you make good financial decisions. There is no single government agency that regulates “financial planning”, so it is important for you to understand the different kinds of business models financial advisors can use. Many advisors sell insurance products and loaded mutual funds to earn commissions, while a few are truly fee-only and do not accept any commissions for selling products. Once you start interviewing potential advisors, be ready to ask tough questions.
Sometimes it will take tough questions to separate salesmen from the truly good advisors. When it comes to interviewing an advisor, no question is off-limits. Ask the advisor what qualifies them to give financial advice. If they are going to give you tax advice, ask if they are licensed to represent clients before the IRS. Ask the advisor what kinds of products they might recommend. Most importantly, ask how the advisor is getting paid, and how the advisor’s firm gets paid.
Communication style is a critical part of the client-advisor relationship. No matter how qualified and experienced an advisor is if you don’t understand the advice they are trying to give you, and they don’t understand your hopes, dreams and fears, the relationship probably won’t work. Talking to the right advisor should feel like talking to a teacher who can take complicated things and explain them in a way you can understand.
Remember, it’s your money and your future! Choosing a financial planner could be one of the most important financial decisions you make. Take the time to educate yourself, ask question and find a well-qualified advisor who speaks in language you can understand.