Do You Need a Financial Advisor?


With the economy shaky, now is the time to get your finances in order.

By Gary Foremen

 

You may not think a financial advisor is something you should spend money on, given the economic stress most of us are facing, but in some ways, now is the best time to get your financial house in order.

The problem is most of us haven't a clue where to start to look for an advisor.

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, and financially successful, friends whom they rely on.

You may a good relationship with your broker and feel he or she is doing a fine job for you. Have realistic expectations. A broker may not be a good option. He or she can't afford to spend much time with someone who's going to generate $50 or $100 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.

You may not be thinking of investing in the market right now, but if you are, keep in mind that 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.

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 an optimistic future.


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