Tips on choosing investment advisors
February 14, 2010 by admin
It is important to put the same level of importance to a financial planner to your financial management, as much you would to choose a good doctor for your health. Your financial health determines the kind of life you’d live as money definitely makes the world go round. Take into account the credentials, their experience, their fees and the regulatory standards to zero into the choice of an ideal financial planner:
1. Credentials: When it comes to credentials, the four common types of financial planners are certified financial planners, certified public accountants, certified financial consultants and certified public consultant. The Certified Financial Planner credential is given by the Certified Financial Planner Board of Standard to an individual after having passed tough examinations and met certain requirements. Such a person has a good amount of in-depth knowledge on financial planning that includes investments, retirement planning, mutual funds, insurance related matters, real estate and tax management.
2. Certified Public Accountant: Certified Public Accountant is known to have extensive knowledge on tax related issues. The degree is awarded by the American Institute of Certified Public Accountants
3. Certified Financial Analyst: These people often work in asset management companies in charge of mutual funds and pension funds. Individuals who work as Certified Financial Analysts are given the accreditation by the CFA institute after they pass three exams that include portfolio management, economics, security analytics, economics and ethics.
4. Certified Financial Consultant: These people usually work in the insurance industry. A Chartered Financial Consultant (ChFC) earns his or her degree through the American College in Bryn Mawr, PA. The person ought to have broad-based knowledge on all aspects of financial planning that includes insurance taxes, investment planning etc.
Financial Planners generally are also classified on the basis of three compensation categories. They are as follows:
A – Commission based: Financial planners who agree to take commission based fees earn their paycheck through commission on sales of financial products like mutual funds, stocks, bonds, insurance etc. You have to assume theses types of advisors will likely those products for which they get higher commission.
B – Fee based: Here, the planners are paid flat fees, or a percentage of money for sales and management of financial products like insurance, stocks, mutual funds, bonds etc
C -Fee only: Here the financial planner is not supposed to get commission on his sale; he just gets a pre-decided amount of money (flat fee) or a percentage of assets under the management. There is less room for conflict of interest here, because the planner is not under any influence to sell the product for a higher commission. The planner tends to give his recommendation on the basis of what is good for his client without stressing on his company
Finding a financial planner with the right amount of experience can be a great asset. Make sure that you hire a planner on the basis of good word-of –mouth publicity; in order words, through recommendation of friends or colleagues. You can also check online for some of the best financial planners who have received good reviews online.