Q. Investing is confusing, and I want to hire someone to manage my money. I’m just not sure how to trust someone else. Where do I start?
A. Investing can be very confusing, and hiring a qualified professional can really remove lots of the stress you get from your portfolio.
When you hire someone, you want a professional who looks are more than just your portfolio. You see, the decisions you make with your investments should reflect all the parts of your financial life. Your goals, time horizon and risk tolerance are all part of this, and you want to make sure the person selecting your investments is making those decisions by looking at the whole picture.
You also want someone who is looking out for your best interests and won’t sell you high commissioned products just so they can make a buck.
Working with a certified financial planner (CFP) is a great way to start.
“The CFP desgination has really become the gold standard for the industry,” said Roy Williams, president and founder of Prestige Wealth Management in Flemington and Millburn. “The course curriculum includes Financial Planning, Retirement Planning, Tax Planning, Investment management, Estate Planning, Risk Management, and more, enabling your advisor to have a broad education on a wide array of topics.”
Additionally, a candidate must have two years of relevant work experience and pass an extensive background check from the CFP board to be approved to use the CFP designation, Williams said.
Next, you want to make sure you work with someone who has a legal responsibility to act in your best interests when managing your money.
That’s someone held to a “fiduciary” standard.
“When you work with an advisor that operates under a fiduciary standard, that advisor is legally required to act in your best interests and put your needs before their own needs or that of their firm,” said Charles Pawlik, a certified financial planner with Lassus Wherley in New Providence. “This is in contrast to advisors that operate under a `suitability’ standard, which requires only that an investment is suitable for a client at the time the investment is made.”
Pawlik said a fiduciary is also required to be transparent about and disclose all potential conflicts of interest that may be present when making investment recommendations to you.
This is a very important aspect of working with an advisor so you have a good idea as to what potential motivations there may or may not be to recommend a specific investment product.
Pawlik said when interviewing advisors that you are considering working with, it is important to ask the question in terms of whether or not they are held to a fiduciary standard of care when managing your assets.
Next, you need to ask the advisor about his or her overall investment philosophy and approach. With that, learn about what types of investments they recommend, how often they review your portfolio, and how they take your changing circumstances into account in the management of your portfolio.
These questions will all provide good insight as to how the advisor operates and whether or not they may be acting in your best interests, Pawlik said.
Also find out how the advisor is being paid.
Some may be compensated on a fee-only basis, which means they are solely compensated by fees you pay to them for their services.
“Advisors may also be compensated by commissions they receive for the sale of financial products which is often the case at broker-dealers, or through a fee-based model which combines both fees you pay to them as well as commissions,” Pawlik said. “A fee-only advisor seeks to remove the conflicts of interest that may be present with commission-based compensation, in which a particular product or investment may be top of mind for an advisor because of the associated commission vs. whether or not it is the best investment for you.”
Whatever kind of advisor you choose, know that all relationships are built on trust and communication.
“The right advisor for you should also be someone you can easily communicate with to express your concerns while providing you with solutions that you are able to understand clearly,” Williams said.
If you’re shopping around, take a look at some of our contributors on our Find an Advisor page.
Email your questions to moc.p1503317518leHye1503317518noMJN1503317518@ksA1503317518.