Most of us do not know the ABCs of financial planning, and worry all the time whether we are making the right choice about investments, expenditure, tax planning, retirement funds and the like. Then, an idea hits – why not hire a finance professional to do all these things for you and take your worries away? Why not indeed?
Before you go out to the first "financial planner" you see in the market, take a look at the 10 top things you should know about this particular task:
1. Certification - no matter what he calls himself or how fancy his office looks, unless he has the right certification, he is not a safe bet for you. You do not need someone who is learning the trade at your cost. Look for adequate credentials, i.e. certified financial planner or personal financial specialist. Do not be shy about asking for his credentials and see the proof – it's your money we are talking about here.
2. Coverage and advice – when you go to a financial planner, you should expect much more that advice on investment. A financial planner is supposed to guide in ALL aspects of your finances – of which investment is only a small niche.
3. Networking is good – the best thing is to find a financial planner who has already earned his laurels among your peers/ colleagues/ friends/ family. Your network is a great place to look for such a professional because you will have first hand proof of his abilities.
4. The payment plan should be clear to both parties. You can hire a financial planner under three separate pay plans: (1) fixed fee, (2) fee based add-ons, and (3) commission. The fixed fee planners do not get any commission from the products they sell; fee based planners may receive commission on some products only; and the commission based planners receive their income only through commissions from the products they sell.
5. Conflict of interest. Pay attention to the financial products they sell, so there will not be any interest clashes. For example, if your planner sells a group of mutual funds or insurance, they might not be able to give unbiased advice.
6. Map your financial needs and expectations. Without knowing where you are and where you want to go, it will be impossible – even for the best financial planner – to plot an accurate path for you. Concentrate first, on having a very clear picture of your liabilities, assets, risk tolerance, and investment style.
7. Understand the basics. It's good that you have hired/ plan to hire a financial planner. However, you still need to know the basics of finances. Ensure that you talk everything out with your planner before he makes any decision on your behalf. Feel free to ask many questions until you feel satisfied with the answers.
8. Trust your financial planner. This is why it's very important that you take your time to make the appointment. Scrutinize every aspect before you hire your professional, and hire him only when you are 100% satisfied to do so. Once he is hired, trust him implicitly. This is just like going to a doctor. Once you have the prescription in hand, you do not go to another doctor and ask whether this is right or not.
9. Dialogue. Your financial planner should be there to explain to you any aspect of your finances any time you want it.
10. Diversify. Allow your financial planner to lead you into previously uncharted waters. Do not be afraid to learn new things and venture into new areas.