Don’t know stocks from bonds? Not sure how mutual funds compare to ETFs? Money can be confusing, but you can’t afford to stay confused.
When in doubt many people turn to a professional advisor. There is certainly no shortage of people willing to tell you what to do with your money, financial advice is one of the growth professions of the new millennium, though its reputation often fails to inspire confidence. This article helps you make the most of the mass of advice available.
There are various types of advisor.
Tied advisors work for a particular institution and only advise on that institution’s products. Tied advisors will not necessarily advise on the best deals available (unless they just happen to be provided by their employing institution). If (and it’s a big if) you use tied advisors, be sure to compare quotes from 3, 4 or however many you have time to go to.
Independent advisors advise across the whole spectrum of available products. They should find the very best deal for your needs.
Independent advisors are paid in 2 ways:
- Commission based – advisor earns commission from products they recommend
- Fee based – client pays advisor’s fee, advisor refunds part/all commission to client
Commission based advisors charge nothing for their time, but they may have ulterior motives (ie higher commissions) for recommendations.
Important points in making your choice:
- Is the advisor licensed?
- Does s/he belong to the relevant professional bodies?
- Is s/he bound by any code of practice?
- How long has he/she been in business?
- Has he/she been recommended by trusted friends/associates?
- Can he/she provide references?
Ask around. The effectiveness of a financial advisor is difficult to gauge until some time after their advice is given. Do your friends recommend a particular advisor? Why?
Advisors can assist in the financial planning and investment process, but always remember it’s YOUR money at stake. The best advice is not to delegate your money management decisions to a (disinterested) 3rd party. Instead make just a little time and effort to acquaint yourself with the available choices. And – should you choose to use one – do this BEFORE consulting a financial advisor, ie you should have a pretty good idea of what you’re looking for before the meeting. Ask your advisor difficult questions – and lots of them.
Avoid signing up for anything there and then. Always sleep on decisions, even if that means the opportunity is lost. There are few opportunities so golden that they won’t exist next morning.
Some advisors are guilty of “blinding with science.” Don’t invest in anything you don’t understand. The advisor’s job is to advise. Your job is to listen carefully and then make YOUR decision.