Selecting A Financial Advisor
Today’s WSJ has a good piece on selecting a Financial Advisor. Since its a subscription site, here are the highlights.
Looking for an adviser? You’ve got to keep these five pointers in mind.• Many advisers earn their keep by collecting commissions on the investments they sell. That means they have an incentive to get clients to trade and to buy the highest-commission products.
Your best bet: Use fee-only advisers, such as those who charge an hourly fee, a percentage of your portfolio’s value or a fixed annual retainer.
• Most advisers have had little formal financial education. For instance, maybe 5% of brokers, financial planners and insurance agents have bothered to become a certified financial planner, or CFP, which has become the basic credential for any half-decent adviser.
To ensure your adviser is knowledgeable, stick with CFPs or, alternatively, folks who have qualified to be chartered financial consultants, chartered financial analysts or certified public accountants-personal financial specialists.
• Advisers don’t necessarily act in their clients’ best interest. This issue has been brought into sharp relief by the heated debate over the Securities and Exchange Commission’s so-called Merrill Lynch rule. Under the rule, fee-based advisers at brokerage firms often aren’t considered fiduciaries, meaning they are supposed to recommend products that are best for their clients.
Instead, they are held to a lower “suitability” standard, which means they are only required to recommend products that are a reasonable choice for their customers. To protect yourself, avoid advisers who won’t commit to acting as a fiduciary.
• Many advisers offer investment advice — and that’s it. But there is much more to managing money than picking stocks and mutual funds.
You might also want help with your mortgage, college costs, insurance, taxes and estate planning. If so, before you sign on with an adviser, make sure the adviser is committed to assisting you with these other areas.
• Most advisers charge too much, especially when you consider the limited advice they offer. Whether you’re paying fees or commissions, your adviser’s services might be costing you 1% of your portfolio’s value each year. Tack on the fees charged by the mutual funds and other investment products you end up buying, and your total annual tab might be 2% or even 3%.
Result: If your adviser recommends a balanced portfolio of stocks and bonds that returns 7% a year before costs, you could pocket less than 5% after all fees are paid.
That doesn’t mean a good adviser couldn’t garner you a better rate of return, while also helping you with the full array of financial-planning issues. But is your adviser truly helping your finances? Not sure? Remember, you can always buy Treasurys bonds instead. These days, that will also earn you around 5% — with a whole lot less hassle.
Here’s the original link
If you found this post helpful, consider donating to my coffee fund!![[del.icio.us]](http://images.del.icio.us/static/img/delicious.small.gif){kind=small}
- Private Equity Funds on the Rise Doesn't it seem that there's been a resurgence of Private Equity buyouts of familiar public companies???Readers Digest just agreed to be acquired for $1.6 Billion. 2005 was infact a banner year for corporate buyouts with targets like Hertz, Toys R Us, Neiman Marcus, La Quinta and Dunkin' Brands, the owner......
- Protecting Yourself Against Inflation While the debate between inflation and deflation keeps on going, I'm firmly in the camp of inflation. And so is Warren Buffett, as are many other investment advisors. So how do you protect yourself and your investments from the effects of inflation? Investment newsletter editor, Keith Fitz-Gerald, recently had a......
- The World's Most Successful Depression-Era Investor I subscribe to a lot of newsletters. One of them Capital & Crises by Chris Mayer had a very interesting write up on John Maynard Keynes: You probably know John Maynard Keynes as an economist, but may not know that he was also a great investor, maybe the most the......
Related Websites
- 10 Things About Funds Investors Should Know About. Whether you invest in mutual funds, index funds or exchange-traded funds and whether those funds are held in your 401(k), IRA or 403(b) there are a lot of factors to consider when choosing the right fund. Here is quick and dirty break down of 5 different types of funds......
- How to End Paycheck Reliance There are numerous ways to end paycheck reliance in your life, however some are obviously more feasible than others in terms of implementation. For example, winning the lottery is an excellent way to overcome your reliance on a paycheck to paycheck way of living, but how much can you really......
- Do Something You Love, Before You Have To Do Something For Money This was my recent advice to a family member who still has his entire adult life ahead of him. Thankfully, he's still debt free, which means he has plenty of options. He can choose to spend his income, pile up debts, and eliminate these options, or remain free. It really......
[All content is copyright of Living Off Dividends & Passive Income]
June 18th, 2006 at 4:24 pm
For retirees seeking a specialist, there is a directory of Certified Retirement Financial Advisors at Retirement Planner