How Do I Get A Financial Advisor?

NOTE:  This post is part of an ongoing education series.  This information is for educational purposes only.  This information does not constitute investment advice.  No rational person would make investment decisions based on a blog post.  Please consult with your financial advisor before taking any action.  If you think it is OK to make investment decisions based on a blog post, then for the love of the FSM – Stop reading this blog.

Money Monday

A couple of weeks ago a reader named Jemand asked some really good questions.  Today I am going to address another part of Jemand’s comment. 

How do I get a financial advisor? How much do I have to pay her/him? How much money do I need to plan to invest to make it worth it? Can I talk to someone at my union? Etc.

There are a couple of ways you can get help with your investments and I will cover some of them below.  Before I do that I want to talk about the, “How much money do I need…” comment.  You will have more options with a large about of money but you can start with as little as a few hundred bucks in a savings account and add money to it every week or month.  The sooner you start saving the longer you will be able to watch the money grow.  The danger here is getting into a bad investment.  I do strongly suggest that you have a basic understanding of investments before you go past a savings account.  There are mutual funds that you can invest in with very little money – around $1,000.  With $3,000 – $5,000 you get into most funds.

In reference to asking the union or your company for advise – bad idea.  Often the people you ask for advice will know less then you or worse they may seem like the know things but they have it all wrong.  If they send you to an expert in will usually be a sales person that gets paid a commission to sell products to you.  In this case there may be a conflict of interest on the part of your advisor.  It is not always bad – but how will you know?  This leads me to the discussion of how to get an advisor.

The phrase “Financial Advisor” is used by a lot of different people so it can be tough to figure out.  The vast majority of people in the investment advise world get paid a commission to sell things to you.  If you have $100,000 and buy what they suggest they may make 4%, 6% or even 10%.  You don’t write them a check and if you don’t ask you may never know how much they get paid.  However, I can assure you they do not work for free.  The big risk can come when the “advisor” is in the position of making $6,000 (6% of your $100,000) or $10,000.  What would you do?  Would you do the right thing?  Every Time?  This can be very tempting for the advisor and like most humans they can probably come up with some good post hock rationalization to relieve the cognitive dissonance for the fact that you got and investment that may not be the best option.

An example I like to use…. If you go to the Ford dealership and ask a salesman what is better Ford or Chevy?  What do you think he/she will say?  They will tell you Ford!  They may be right but if there was a Chevy that better fit your needs – would they give you all the details?

What you should look for is a Fee-Only financial advisor that gets paid by you.  Like the auto example above, this would be a person that could help you look at all types of cars (or investments) and help you get the best one.  People work for those that pay them and a Fee-Only advisor should be able to state that they get paid from no other source.    You want your advisor to work for you not some big investment company.  Fee-Only financial advisors may charge anywhere from 2% per year for small accounts to .5% for larger accounts ($500,000+).  This is something that you would need to discuss with the advisor. 

My experience has shown that most people do better with and advisor, even if the advisor is paid a commission.  So, I’m not saying that a commissioned sales person is bad, I just think you can do better with a Fee-Only advisor.

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3 Responses to How Do I Get A Financial Advisor?

  1. Joey says:

    Phil, I apologize for being ignorant on this subject, but my friend was telling me the other day that most banks have financial advisors and at not cost to the bank customer. Is this what you are talking about in the article? She mentioned this kind of advisor would help me with some finances and minor stuff.

  2. Phil says:

    @ Joey, Great question!
    I will restate one of my basic rules, “People work for the person that pays them”. I you are not paying this person for help – who is? I would guess that it is likely one of two options…
    1) They work for the bank and are there to get more of your money in the bank. They may have CDs or a different type of Money Market account. Their job is to get more of your money at the bank. You may or may not get the advice you need and your free help may result in underperforming products.
    2) More likely is that this person works in the bank but is an employee of a brokrage firm. They are there to sell you stuff. Their advice may be tainted by what they can sell or how much commission different products pay. They will be paid a commission out of the money you invest. So, in this case you will pay but not know it if you don’t read all 72 pages of some prospectus.
    Feel free to go get the advice – just don’t buy anything before you get a second opinion. You may contact me (use the About tab at the top of page) if you have more questions.

    Phil

  3. jemand says:

    thanks so much for responding to my questions 🙂

    It’s really helpful. Once again, I have to say how much I love your blog… approaching money matters in a skeptic/rationalist fashion is more rare than other ‘magical’ ways of trying to make money (in my experience from talking to people), or the social aspects most other skeptic blogs focus on.

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