Do you have money to invest, but you’re not sure where to put it? Most people who are unsure about investments hire someone to help. Here’s how to do that the right way.
Why you want to use a fee-only financial planner
One of the greatest danger points in your financial life usually comes mid-career, when you find yourself with a good amount of money in a 401(k). You’re at the greatest risk because that’s when you’re most likely to end up hiring a commissioned salesperson.
Is that a problem in itself? No.
There are plenty of situations when paying a commission is just fine. But in the investment world, there can be inherent conflict of interest with commissions.
There are plenty of investment products that may not be the best choice for you, but you may be sold them by a commissioned salesperson because the commissions are just so humongous. For example, variable and index annuities are referred to as “sold,” not “bought.” People don’t buy these on their own — they are convinced to do so.
Salespeople use code words like “retirement secured account” and other phony phrases to keep from tipping you off that you’re being sold an annuity. Sometimes a life (otherwise knows as immediate) annuity makes sense, but the commissions are so low you won’t hear much about them.
I want to warn you away from another term: “fee-based planners.” These salespeople start with a fixed fee, but the commissions on products they may sell you defray those initial costs, which again, may not be in your best interest. Honest commissioned salespeople will rise above their personal interests and sell what’s right for you.
The stakes are so high in investing that you should consider fee-only planners. They’ll give you a fixed price up front for their services, regardless of the product they recommend. You won’t have to worry about conflict of interest.
Their success will depend on your good word of mouth and how well they did by you. To find a good one, go to the National Association of Personal Financial Advisers website. All of the advisors there are fee-only. Another good resource for fee-only planners is Garrett Planning Network.
Make sure your financial planner is a fiduciary
There’s one more thing I want you to do when selecting a financial planner: Make sure they’re what’s called a “fiduciary.”
A fiduciary is a planner who swears to act only in your best interest, not their own. When you’re working with a fiduciary, there should never be any question that the advice that person is giving you is his or her honest opinion that it is the best move for you.
Recognizing the need to police itself, the financial advisory industry has come up with its own solution called the Fiduciary Oath. Now, more than ever, in the absence of any legal mandate requiring advisors to put their clients’ interest above their own, you have to be sure your advisor signs this document.
More than 40 financial advisory firms across the country have signed the Fiduciary Oath at TheFiduciaryStandard.org. This is their promise to you as a potential customer that they’re going to do right by you if you hire them to manage your assets.
In addition, the National Association of Personal Financial Advisors requires its members to take a similarly binding fiduciary oath that’s a sign that you can hire any of their members in good faith.
Finally, Garrett Planning Network requires that all its members be bound by the same fiduciary oath that NAPFA’s members agree to.