Before turning your hard-earned money over to a financial adviser, you'll need to schedule a sit-down and ask some questions -- from basic to painstaking. It probably goes without saying, but a face-to-face meeting with a prospective planner, broker, or investment manager is a must. Relying only on recommendations from your most trusted friends and family members won't suffice; it's ultimately up to you to make sure your investment dollars are safe and being put to work to meet your specific goals.

So what do you need to know? Here's a list of questions to help you prepare for your first meeting:

1. What are your qualifications?

Ask how long the adviser has been in the business, as well as the length of employment with each company. Has he or she been with a single firm for the past five years, or jumped around? What professional certifications and designations does the adviser hold?

A scary truth is that anyone can call himself or herself a financial planner or adviser, so it pays to double-check what you're told with national organizations that issue credentials. They include the National Association of Personal Financial Advisors, the Financial Planning Association, and the Certified Financial Planner Board of Standards. Using BrokerCheck, an online tool from FINRA (Financial Industry Regulatory Authority), you can review the backgrounds of FINRA-registered brokerage firms and brokers. A quick search will turn up qualifications and employment history, examinations passed, and organizations and states he or she is currently registered with.

It's also worth checking with your state's securities regulator to see if any complaints have been filed. "It's likely that you're giving this individual tens of thousands or hundreds of thousands of your hard-earned money -- isn't it worth and hour or half an hour to check that person out?" says John Gannon, FINRA's Senior Vice President for Investor Education. "We hear all too often someone gave money -- sometimes their entire retirement savings -- to an unlicensed professional."

An adviser's resume may look impressive, but it's a good idea to research those distinguished-sounding qualifications. On its website, NAPFA (the National Association of Personal Financial Advisors) lists descriptions of certifications and designations along with their requirements. Becoming a certified financial planner (CFP), for example, requires 30 hours of continuing education every two years. "Designations are only as good as the requirements to get them are," says Gannon. Some require a specific level of work experience or rigorous education. "Others [take courses] on weekends and have open-book exams to receive a designation."

2. What is your area of expertise?

You certainly don't want to pay for services you don't need, or -- even worse -- sign on with an adviser who can't meet your needs, says Gannon. Advisers may have a specific focus and tailor their practices to areas including investment management, tax, retirement, or estate planning.

Make sure the services offered are a good fit. For example, if your primary focus is generating income in retirement, Gannon says you'll want to find an adviser who has experience building bond ladders with different maturities, and who understands how to buy and sell them (purchasing individual bonds can be more complex than buying stocks.)

3. What do you invest in?

Advisers may invest their clients' money in a wide range of financial products, from mutual funds to stocks to individual bonds and more exotic fare. If investing for your child's college eduction is a goal, for example, make sure that the adviser works with 529 plans and is versed in other education-savings products. And if you prefer to invest in a specific family of mutual funds, find out if they are offered. "[The adviser] might have a distribution agreement with a single firm so they might not have every product out there, or one that you want," says Gannon.

Beware of products including exotic investments that incorporate leverage and complex derivatives. If you get a pitch for an asset class you're not familiar with, make sure you understand the process by which it achieves returns. A hedge fund, which isn't required to disclose its holdings, is an example of a nontransparent investment.

To get a sense of the adviser's track record, ask about the performance of portfolios of clients that would be similar to yours -- over short- and long-term periods, as well as during recessionary periods.

4. How do you charge for your services?

Ask how your advisor will be compensated and get it in writing. Some charge a percentage of the value of your assets, while others might charge by the hour or charge commissions on the securities they sell. Financial planners might bill you for creating a plan -- such as a portfolio designed for your specific needs -- but won't make transactions. Advises Gannon: "Ask, 'how will this investment make money -- dividends, interest?' ... Specifically, what must happen for this investment to increase in value? For example, an increase in interest rates or real estate values?"

5. How often will we be in touch?

At some firms, you won't have your own adviser. Ask: Will you be my primary contact, or do you take a team approach? Find out at what frequency you will meet to discuss your investments. Will it be on a regular basis, or will you call to schedule a conference?

6. Do you receive incentives?

Here's a tough question for your prospective adviser: Are there factors -- such as business relationships or partnerships -- that could sway your recommendations? "Do they receive incentives for products they sell you?" says Gannon. "They may say they don't, but many times there's some sort of compensation ... that may not come out of your pocket." Does the adviser get paid for referrals to attorneys who are accountants, for example? Does he or she receive income from any mutual funds they recommend? This will help you determine if there are any conflicts of interest.

 

 

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Personal Finance - Key Questions to Ask Before You Hire a Financial Adviser

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