But the pitfalls are many and the consequences for picking the wrong adviser can be costly. Jonathan Clements offers some advice on how to choose wisely in his article “Due Diligence: The Five Key Rules to Heed Before Hiring a Financial Advisor,” in The Wall Street Journal.
- Know this going in: financial advisers are paid by commissions based on the investments they sell. It is in their interest to sell products that yield them the highest commissions. To avoid being lured into buying a product that’s not best for you, Clements suggests using fee-only advisers who will charge an hourly fee or a percentage of your portfolio’s value or a fixed annual retainer.
- Pick an adviser who is a Certified Financial Planner; only 5% of financial advisers possess this qualification because U.S. financial planners are not required to be certified.
- Avoid advisers who won’t commit to acting as a fiduciary.
- Although many advisers limit themselves to choosing stocks you may have additional priorities such as getting help with your mortgage, college tuition expenses, insurance, taxes and estate planning. Make sure your financial advisor is willing to advise you on these issues.
Financial advisers often charge too much. You may wind up paying them 1% of your portfolio value each year. If you add on fees charged by mutual funds and other investment items you may only have an annual total of 2% or 3%. Consider investing in treasury bonds. They are less risk and hassle and will earn 5% a year.
Have a look at some of these websites for additional information:
: search for a certified financial planner - <>
: find a fee-only financial adviser in your region
If you do your research and plan well, you can continue to build a stronger business with the added confidence that you’ve invested well.
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