How
to Select a Broker or Financial Planner
Author:
Gary Foreman
All
the talk around the water cooler is about who made money in the stock market.
And you're beginning to feel like the only person who hasn't joined in. You
know that you need to plan for retirement, but right now you're on the 'hope
plan'. That's where you hope you have enough money later. In fact, you've
been meaning to find a stock broker or financial planner to help you. But
even that's tough, since there are so many of them.
So let's see if we can't learn how to find a good stock broker or financial
planner. To start we need to have an idea of what we want to accomplish.
If your goal is long term, you'll want someone who has a stronger background
in financial planning. On the other hand, if your goal is to make a few fast
bucks in the market you'll want to find someone who has experience trading
stocks. The odds of finding someone who's excellent in both areas is slim.
In
fact, it takes a different type of personality for each to succeed. The stock
broker needs to be a risk taker. A good broker must be able to understand
financial reports, but also be plugged in to good sources of information.
While they're not allowed to trade on insider information, some brokers just
seem to be closer to good information.
A
good financial planner has a different style. Much of their strategy isn't
taking risks, but rather minimizing them. And that's just as it should be.
Working towards a long term goal puts time on your side. The trick isn't
to make money quickly. Rather you want to keep from losing too much money
no matter what happens in the future. That means that more than one strategy
will work if you give it enough time.
Now
that you have an idea of whether you want a planner or broker, how do you
know who to choose? Let's begin by making a list of potential candidates.
Ask your relatives, neighbors, co-workers and any one that you respect who
they use. Get a name, firm and phone number. Ask your friend what's the worst
thing about working with their advisor. That answer alone should eliminate
some candidates.
If
you ask around you should be able to collect between four and six names.
The next step is to follow up with a phone call. Tell the receptionist that
you're looking for a new advisor and would like to talk with them now or
make an appointment for later. Don't be disappointed if they don't put you
through. If the advisor is successful you would expect them to limit interruptions.
When
you do speak with them you'll want to refer to a list of questions that you've
already prepared. Verify before the meeting that it is a free session.
What
you expect to accomplish in an interview will vary for brokers and planners.
With a broker you'd expect him to brag about his results a little. Part of
the selection process is listening and deciding how much of what they say
is 'brag' and how much is 'fact'.
You'll
also want to see what types of questions they ask you. Part of the process
for the broker should be to determine your experience in the market, ability
to take risks and goals. And they shouldn't be willing to accept 'make a
lot of money' as a goal. They should insist that you provide a rate of return
that you expect. If they fail to do that, neither one of you will know what
you really expect to accomplish.
When
you interview a candidate to be your financial planner you'll want to find
out about their philosophy of wealth accumulation. They should ask you detailed
questions about your current net worth, income/expenses and financial goals.
Also expect them to ask about your experience with investments. Good planners
want to find out how much you know about the subject. A good planner is a
lot like a doctor. You need to be willing to take off your financial clothes
if they're going to do any good.
You'll
also need to ask the planner how they charge. Some earn commission on investments.
Others charge on an hourly basis or even ask for a percentage of your wealth
each quarter. Fees can vary dramatically. You can expect to pay in the $1,000
range for a financial plan. Hourly rates are in the $100 per hour range.
If those rates seem prohibitive, you might need to consider a planner that
charges a commission on the investments they recommend.
Many
planners have achieved professional certification. And, unfortunately for
consumers, there are a number of them that planners can obtain. The Certified
Financial Planner (CFP) designation is granted to people who pass five courses.
Having taken the courses, I can vouch that it is possible to fail! The courses
cover insurance, taxes, retirement planning, investments and estate planning.
You
might also come across someone who is a Chartered Financial Consultant (ChFC).
The program began back in 1982 and over 30,000 people have earned the designation.
There are 10 courses involved in completion. Typically people coming from
an insurance background are more likely to earn this designation.
Certified
Public Accountants are also offering 'fee only' financial planning. That
means they don't earn any commissions on the investments you make. If you
have some tax problems that could a good route to take. But, remember that
they're background is in taxes, not investments.
You'll
also probably wonder if you couldn't do it yourself. And for many people
the answer is yes. There's a wealth of information available. Between your
library and the internet you have a wealth of resources.
But,
before you decide, remember what you expect that professional to do. You'd
want your stock broker to be continually talking stocks with a wide range
of experts to help him find the next winner. A couple of buddies at the golf
club is not the same thing. A financial planner needs to be familiar with
investment strategies, tax laws and a wide range of issues. Again, it's great
to read Money magazine. But, that doesn't put you on the same plane as someone
who works in the field every day.
Selecting
a broker or planner is a very personal experience. Taking a little extra
time and effort now could pay dividends for many years.
About
the author:
Gary Foreman has worked as a Certified Financial Planner and currently
edits The Dollar Stretcher newsletter and website www.stretcher.com.
