Finding a Financial Advisor

With tax time around the corner, now is the time to think about getting your finances in order.

By Gary Foreman


If you're in the market for financial advice, attending a class or seminar is a good place to start. Back when I was a broker I even taught a few classes.

You also can ask respected friends whom they rely on.

Have realistic expectations. A broker can't afford to spend much time with someone who's going to generate $50 a year in commissions.

And that's okay. For transactions that generate small commissions, you should be able to use a discount or online broker. For a regular investment program, you might be better off choosing a mutual fund.

Define Your Goals
Because there is no one right financial firm, broker, or planner for everyone, choose your advisor by deciding what you're trying to accomplish.

Some things are fairly simple. For instance, finding a good deal on auto insurance. Other things, like estimating how much money you'll need for retirement, are more complicated.

Determine how much you already know about the subject and how much you are willing to learn on your own. You will save money by becoming more knowledgeable, but it takes time and effort to gain that knowledge.

Resources that were only available to brokers 20 years ago are now as close as your computer. There are a wealth of books on all areas of money and investments.

One rule should guide you when making financial decisions. If you don't understand an investment, don't put your money into it. A careful explanation will let you understand exactly how your money is expected to make more money.

Understand Compensation
You need to find out how the financial firm you use will be compensated. Generally, they make their money by charging premiums, commissions, and fees.

You're used to paying premiums on insurance policies. Determined by the insurance companies, premiums are not a set percentage of the coverage. Typically, premiums are regulated, but you should shop for the lowest price.

On investment products, you could run into commissions. A commission is a charge that's added to the cost of the securities being purchased or deducted from the proceeds of a sale. It's not a flat percentage, but is related to the amount of money involved.

There is no standard commission rate. Full service brokers who provide stock trading advice get top dollar. Less service means a lower price.

How Fees Are Figured
Fees come in a couple of different disguises. Some are charged when you take a certain action. A common one is the fee for a bounced check. Mutual funds may charge a fee for trading funds within their family.

Typically fees are a set, flat amount and are not dependent on the size of the transaction.

Many investment managers are compensated through "management fees." They'll charge a preset percentage of the money they control for making the day-to-day investment decisions. Charges are usually between .25% and 1.5%. The fee schedule for any money manager (including mutual funds) should be readily available.

With some mutual funds, you'll incur a fee if you sell the fund. Those are known as "12b-1 Fees."

The financial services industry is creative in finding ways charge you for their work.You will need to dig a bit to find all the premiums, commissions, and fees you could be facing.

In some products, you'll find a combination of the different charges. Generally the company is required to advise you of all expenses before you purchase, but expect to study some fine print to find them.

The good news is that there's plenty of help available for just about any financial situation. Hopefully you will get just what you need for a bright future.

Gary Foreman is a former certified financial planner who currently edits The Dollar Stretcher Web site.