A financial advisor plays a very important role in determining your financial soundness. There are many issues that make it tricky for an investor to judge if the decisions are taken in their best interests. So here is a quick guide that will help you get the best financial advisor.
- The role of a financial advisor is to provide investment recommendations on the basis of risk, age and wealth. This doesn’t imply that they will also provide with the best solution. It is important that you sign a ‘Know Your Client’, which is a form that shows the risks you are taking.
- It is great to find out about whether the financial advisor is actually taking care of your investments call them all of a sudden and ask a few questions about your account and if they address it instantly then you know they are handling your account seriously.
- Next, the fees charged by the financial advisor is also important to consider. For annual fees it should be maximum of 1%. Most people are in a habit to invest their money in one place and forget about it but this is not managing. If you are planning on this you can do it on your own by getting a discount broker that will help you save on fees.
- In case the broker chargescommissions it is possible to buy and sell different stocks for $10 or less per trade. So, if the broker charges more than this then there must be some extra services too.
- It is important that the advisor assesses individual securities and the market should use various methodologies including fundamental, technical and quantitative. If the company uses just their own research then they are not good at recommending sells.
- Another thing to consider is that when you buy mutual funds there should be no-load basis or fees. This is because the advisor is paid annual trailer fees get adequately compensated for their work.
- You need to maintain a good communication with your advisor not just when you want to make a transaction but you should be called once a month at least. Apart from this, a report on the performance of your account should be regularly sent.
- If the advisor has appointed an outside money manager you need to know that there is two extra levels of fees you need to pay. So, always try to approach the money manager directly and you can save approximately 1% every year.
- As many a times there are hidden fees on fixed income investments you need to ask the advisor about this. Transparency of fees is always a big problem with most of the advisor and you can be charged almost 2-3% on bonds, which you may not be aware of.
In the end, just remember that even though you may really like your advisor but sometimes these people may manipulate you for their own benefit. So, hire someone who is not only good to talk to but also passionate about the work and have great knowledge of the markets.
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