Dealing with Financial Advisors

Warning Sign: If Your Advisor Does Not Have a Clearinghouse

Here’s a riddle: What did scam artist Bernard Madoff lack, other than a conscience? Answer: a clearinghouse. This little-known entity is vital to your investment portfolio. If your advisor doesn’t have one, be very afraid.

Investors should ask their advisors about clearinghouses. Checking this is akin to what a homeowner does when hiring a roofer: Making sure that the contactor is licensed and has a surety bond. Clients must receive written information about clearinghouses, according to federal regulations. Many, unfortunately, do not pay attention to these disclosures.

Get an Investing Philosophy

Investing effectively over the long haul means staying cool despite hysterical reports that urge you to act immediately. Here’s how to keep your perspective.

If you think any kind of economic environment makes for scary headlines, you’re right. If you think taking pundits’ investment advice might land you in the poor house, you’re right.

Who to believe? You want to follow the right philosophy; you don’t need to give up or go it alone out of confusion.

What’s a responsible saver to do? How can you best save for retirement?

Parents’ Money Talk Taboo

My last article explored three fears that stop adult children from talking with parents about their estate plans, even though such conversations could greatly benefit both generations. These are: “It’s none of my business,” “I don’t want them to think I am greedy” and “It will ruin our relationship.”

Advisors’ Unsung Backstops

They are the little-known backstops of the brokerage industry: clearinghouses that hold your portfolio, take your investment money, send out statements and do all the other administrative tasks you need – and they do them independent of your broker. In the wake of the Bernie Madoff scandal, it’s good to know that they are around.

Multiple Advisors: The Pros and Cons

Last month, we advised asking prospective advisors what they don’t do, and how to fill in the gaps by hiring folks with the right expertise. Often, your needs intersect, so you require two specialists. But the risk is that your financial situation ends up disjointed, since the advisors often don’t pool their conclusions.

When to Invest 401(k) Money

Each month, where should your money go first: 1) paying your bills, or 2) contributing to your retirement savings? The answer is 2). While keeping current on your bills is important, regularly socking away funds for your retirement is more important. If you wait until month’s end to put money into the retirement account, there won’t be enough left to make a difference in building your long-term wealth.

Call it paying yourself first. Perhaps most important for you to know: Your investment contribution rates produce your ultimate success in having the financial ability to retire.

Selecting a Wealth Manager

Choosing an advisor is not easy. Nor should it be. Here are a few questions to ask as you start the process of selecting an advisor, as well as red flags to avoid at all costs.

·         How does the advisor get paid? Is she or he commission-based or fee-only? A fee-only advisor does not accept any type of commissions for product sales. For advisors who are compensated by commissions, you pay them as you execute trades.

Ask What Advisors Don’t Do

One of the first questions to ask, when shopping for an advisor, is what the person does not do.

Just as you won’t find a doctor who can treat your allergies and clean your teeth, it’s rare for one advisor to handle such disparate areas as investing, insurance, trusts and inheritance. You may need to spread the work around.

Sure, lots of advisors can handle your basic needs, such as drawing up a financial plan and running your money. But for other stuff, specialists are called for.

The Big Question: Why?

The most important thing you can ask when setting out a financial plan is: “Why?” For what purpose are you building wealth? The answer is far more crucial than how you acquire assets.

Children have a knack for asking a question that gets to the heart of the matter. You tell them what to do, or how to do it, and they look at you wide-eyed and ask, “Why?”

Your response? “Because I said so.” Yes, your cute little why-machine may be exasperating, but you really did not answer the question. Consider the wisdom behind the why?

What to Ask an Advisor

When you seek a financial advisor, what questions should you ask? Your aim is to find someone who handles clients like you – and who is financially savvy.

If searching for an advisor to manage your assets, one question that’s of marginal help is: What’s your investment record? A money manager whose investment performance touched the sky last year may stumble this year.


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