Even for the business-savvy, finding a financial advisor isn’t easy.
Consider a lawyer friend, who went hunting for financial help after her husband died. The woman — who will remain un-named — sought recommendations from friends and her accountant, met with eight different candidates, asked explicit questions about how they would be paid.
The advisors she hired quoted a flat fee for services — then charged her other fees that weren’t disclosed up front.
“They said, ‘We’re sorry. We’ll credit you for everything,’ ” she said. But she took her business elsewhere. “I lost confidence in them. I don’t want to be in a game of ‘gotcha’ with my financial planner.”
Sadly, this experience underscores that there’s no foolproof way to avoid being taken advantage of, experts say.
But you can improve your odds, starting with asking lots of questions.
Do Your Homework – and then some.
Many planners offer free consultations so you can meet, see if you get along and get details about their credentials.
But don’t count on one free session to figure out all of your financial needs.
“If it’s a single issue, you might be able to solve that in a couple of hours,” says one local planner. “If you’re really going to look under all the rocks and do it completely, you need that financial planner to look at your tax returns, an estate plan if you have one, if you have a will, if you have trusts. You need someone who is going to look over your insurances, what your cash flow is like, whether you’re bringing in more than you’re spending.”
So, start by deciding why you want financial advice. Do you want advice about rebalancing your 401(k)? Retirement planning? A comprehensive financial strategy that you plan to manage on your own? Then seek a specialist.
Next, check expertise against your needs. “An orangutan could call themselves a financial planner,” says Max Green, who is both a certified financial planner and registered investment advisor.
The designation of “certified financial planner” means the advisor has been vetted by an independent board, agreed to abide by its code of ethics and has at least three years of financial planning experience, among other requirements.
Some stockbrokers can also offer broad advice — but not all, says Andrew Menachem, a senior vice president at Morgan Stanley Smith Barney, who also teaches a wealth management course at the University of Miami.
“Not all brokers want to offer comprehensive financial advice,” Menachem said. “Some are more comfortable buying municipal bonds for clients or trading stocks.”
Another option: A large institution, such as a trust company or bank with a trust division. These typically work with clients with $1 million or more.
“They know how to manage funds within complex vehicles,” says Teresa Weintraub, president and CEO of Fiduciary Trust International of the South. “We make sure that we don’t do something that affects the tax plans and estate vehicles people have put in place.”
Her advice for dealing with large firms: Find out how long the company has been in business, and be sure the investment process is transparent.
Also ask about the firm’s investment strategy: Do they have preset programs, or are all investment plans tailored to the individual?
“At some firms, when they’re selling a product they fill out a questionnaire and feed it to a computer and it says ‘Buy this product,’ ” Weintraub said.
Ask how you’ll pay for services, says Matt McGrath, president of the Financial Planning Association of Florida. Typical scenarios include commissions, flat fee, an hourly fee or a percentage of assets in management.
If you need straightforward advice on budgeting or 401(k) adjustments, he says, you might consider a planner that charges an hourly fee.
At the other end of the spectrum are managers who charge a percentage. This often applies to large accounts and typically decreases when the dollar amount of the assets increases.
Above all, ask questions.
There are no stupid questions.
And if you’re not satisfied, don’t be afraid to make a change.