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Do your homework when seeking financial advisor

Posted online

by Richard Hale

for the Business Journal

How, in this world of people who want to sell you investments, can you find the right financial advisor someone who can explain the investment process without jargon and who is committed to helping you reach your investment goals? The key is to be well informed about your options and have your needs well-identified.

Why a financial advisor? Back in the early days, some considered financial planning a sales tool a vehicle that justified the purchase of selected investments.

But today, financial planning has become an increasingly popular, multifaceted specialty for helping people reach their financial goals.

That popularity may be due in part to the fact that many people don't feel informed or experienced enough to make financial decisions on their own.

With the growing complexity of investments, that's no surprise. If you are among the inexperienced, an advisor may be able to help you create and implement a financial plan.

He or she may also encourage you to look carefully at parts of your financial life that you may have been avoiding, such as the organization of your financial records.

Knowing your options. If you decide you need advice, you can choose from three types of financial advisors:

?Fee-based advisors charge you a flat fee or hourly rate for financial planning services, but do not sell the products to implement your plan.

?Commission-based advisors prepare financial plans and implement them with products from which they collect commissions.

?Fee-and-commission-based advisors charge a fee for financial plans somewhere between $300 and $3,000 and earn commissions on products they sell to enact the plans.

Regardless of the type of advisor you choose, make sure you understand the costs involved.

Avoid any advisor who is vague or confusing about compensation or who refuses to discuss fees until you become a client.

Legitimate advisors want you to ask about and understand how they are paid for their services.

Initial consultations with financial advisors you are considering should be free of charge. If there is a charge for this meeting, make sure it is applied to the total cost of the plan if you decide to hire him or her.

Finding the right financial advisor. While cost is an important consideration when choosing an advisor, you will also want to make sure the person you select has good credentials and abilities.

Before you hire an advisor, consider the following:

?Get recommendations from friends. Ask your friends or family members who they use. Find out what services they get from their financial advisor, what their results have been and how satisfied they are.

?Check credentials. You may see financial advisors with one or more designations like certified financial planner (CFP) or chartered financial consultant (ChFC). They are evidence that the person has passed rigorous exams covering most aspects of financial planning and has agreed to abide by a code of ethics.

?Interview the advisor. Consider questions like: "How long have you been working directly with clients?" "Can you show me a sample financial plan?" "What are your areas of expertise?" "Do you specialize in one type of clientele?" And, don't be afraid to ask for references.

Setting your goals and creating your plan. After you've chosen a financial advisor, be ready to identify your goals. Do you want to retire early, fund your children's education or save for a new house?

Once you've set your goals both long- and short-term your advisor can help you create a road map for achieving them.

It's also important that your financial advisor understands your risk tolerance. That knowledge will help shape your financial plan and how long it will take to reach your goals. Once your plan is created, your advisor can make investment recommendations for implementing your plan.

As you can see, there is no "one size fits all" approach to financial planning. The kind of advisor and financial planning method that's best for your next door neighbor may not be right for you. So, before you select a financial advisor, do your homework. Then get started the sooner you act, the faster you'll reach your goals.

(Richard A. Hale, CFP, is a financial advisor with American Express Financial Advisors Inc.)

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