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Things to consider when choosing a financial advisor or planner
Category :- General

Author :- Art Smith 
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Posted on March 22, 2014, 1:42 pm
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Things to consider when choosing a financial advisor/planner

-You must feel comfortable with your advisor. If you do not – there are plenty of other advisors, do not be shy and look for other candidates. What matters most is your gut feeling, not his/her knowledge, credentials, references or mutual acquaintances. At the end of the day you risk your own money and if you have doubts about your advisor, trust your intuition. Watch his/her body language.


-Do not rely on your friends' recommendations only. Verify, ask questions and judge yourself. Never assume that someone else's recommendations are better than your own observations and opinion.


-Many advisors are pushy. This is a good thing. In many cases you might think that you do not need this or that financial product but your advisor's experience might tell otherwise.


-When in doubt – ask questions. If you do not understand what your (potential) advisor is saying ask for clarification. If you do not understand it again – you should probably not hire him/her. It is your money and you have the right to understand what your advisor is going to do with it. The language your advisor uses with you should be comprehensible and it should not be overloaded with the financial industry jargon.


-Check financial designations and ask about his/her experience. Do not be shy and ask for proof of diplomas and certificates. Advisors are proud of their educational achievements and if they have credentials they will be happy to show them to you. Inquire about licenses. Advisors are there to sell, but there are different licenses for different products/securities. Having references is a good idea but remember that referees are normally chosen among those who are satisfied with the services provided.


-Ask your advisor if s/he has ever recommended clients to sell their investments. Most advisors are paid percentage of assets under management, they are not paid when you switch your investments into cash/GICs. An advisor that never recommends to sell is probably more interested in his/her commission than in your wealth preservation. There are no perfect investments, any investments can lose money if you buy or sell them at a wrong time. Your advisor should be able to identify these periods. Sometimes risk of owning investments is much higher than not owning it.


-Ask how s/he is compensated. Most advisors are paid percentage of investments you bring to them and they do not charge you for each visit. Some are paid per visit/hour. Some receive monthly salary and get their bonuses based on different criteria. There is no good or bad type of compensation, but the compensation method should be disclosed to you and you should understand it. There is no free advice: you always pay for it, so just find out how.


-Look for a financial planner who can advise you about assets (i.e. savings and investments), liabilities (i.e. debt), protection (i.e. insurance), tax and estate planning. Keep in mind that financial advisors working in banks cannot sell/recommend/discuss personal insurance due to Bank Act; they only deal with credit insurance.


-Look for an advisor who is knowledgeable and may provide advice about different asset classes (i.e. gold, real estate, land, private deals, cash, bonds, stocks, etc.).Your portfolio is diversified only when you own completely different and not correlated assets. Keep in mind that when you only own shares of different companies you are not diversified.


-Taxes are your biggest expense, your advisor should spend more time on tax saving strategies than on anything else.


-Avoid investment loans. They are debt. Advisors who sell them are usually well compensated and that creates a conflict of interest. If you disregard this advice, borrow only when (stock) markets are substantially down, not when they have been up for several years.


-Do not assume that you do not need a financial advisor if you do not have much money. You always need one, one of the reasons you do not have money is because you do not have a good advisor.


-Your advisor does not know everything but s/he must know where to find the answer.


-Personality of your advisor is much more import than his/her financial institution; the latter rarely matters.


Finding a good advisor is not a simple task, invest time and do not choose the first available person. A good advisor can save and make you a lot of money, while a bad one can destroy your wealth.

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