Hired Helped: Finding the Best Financial Advisors

 
In my early twenties, I had a spare couple of thousand dollars to invest. Precious metals were getting a lot of coverage in the press as interest rates and inflation were rising fast. On the basis of some official looking ads placed in The Wall Street Journal, I made contact with a company called the International Gold Bullion Exchange (IGBE). To make a long story short, the company was a scam - I was lucky that I only lost about $2,000 (although if I had simply invested that money into a diversified stock fund, it would be worth more than $25,000 today).

I learned a powerful lesson at a relatively young age. I had not done my homework about the company that I chose to do business with and had blindly gone down that path without any outside perspectives, counsel, or second opinions. Even if I was sure that I wanted to invest some money in gold, I had not adequately researched my investment options in that arena. I had not learned about different companies providing products and services in that field and had done insufficient comparison shopping. I was young, naïve and impatient. I assumed that since IGBE was a regular advertiser in respected business publications, they were a legitimate firm.

I should have sought out objective information and advice before I decided to send money to this fraudulent company. If I had done enough basic reading, for example, I would have learned that the field of commodities and precious metals had more than its fair share of problematic companies (and pundits) over the years. If I had called around to different companies to learn about the industry and various players, I would have heard stories about serious problems at IGBE.

Over the years, I've not only learned from my personal experiences but I've also heard what thousands of others have done wrong and right. Here are the main insights I've come to believe about making the best decisions with outside help and assistance:

• Educate yourself first. No matter the subject area - investing in mutual funds, buying a home, or securing life insurance - you've got to learn the basics and lingo. Otherwise, you're not going to be able to know who is bamboozling you and what the deal is with what you're considering. How can you possibly evaluate the competence of someone you're considering hiring if you yourself are ignorant in the area in question? Getting a crash course through a good book on the topic can be a cost-effective and excellent way to start. The biggest challenges with selecting books are finding those written by authors who have sufficient expertise and high ethical standards. (See the "Book/Research Summaries" section of this site).
• Clearly identify in what area(s) you think you need help. Are you having trouble living within your means? Perhaps you have lots of financial quandaries and don't know where to begin and how to prioritize. Or maybe you're one of those rare, fortunate few who have the "problem" of rapidly accumulating piles of cash that you don't know how to invest.
• Search hard for the best information and people you can find. If you simply hire the first person you come across or are referred to, you're going to make many mistakes. The same holds true for selecting financial advice publications. You've got to scrutinize, ask probing questions, check references and prove to yourself that someone is worth listening to or hiring.

Now, if you open up your local yellow page directory or do an online search, you can quickly see how many people call themselves financial planners, financial advisors, financial services providers, etc. And for good reason - after all, tens of millions of people have the challenge of living within their means, planning for major expenditures such as buying a car, a home, for retirement, higher education expenses, starting a small business, securing proper insurance coverage, etc. Financial consultants and planners purport to be able to help with this far ranging list of money challenges. And, the best ones out there are able to tackle at least some of these topics competently and ethically.

Your challenge if you desire to hire a financial planner is to:

• Define in what areas you need help. Are you having budgeting problems and trouble with consumer debt and being able to save money? Have you got the problem of cash languishing in low interest accounts and you want to know how to best invest this money for your financial future?  Or, is your problem that you and your spouse argue about money and can't agree on common goals? The first step towards finding the right help and beginning to correct a problem is to clearly define and acknowledge the problem. For example, saying "I don't know how much I should be saving towards retirement and in what accounts and investments," states a specific problem. So does the statement, "How do I prioritize among competing financial savings goals of saving for retirement, a home purchase and my kids' college education."  
• Identify potential experts for providing that type of help. If you seek help with budgets, spending and dealing with debt, you're obviously looking for a different type of advisor than is someone seeking an investment manager to direct a six-figure nest egg. While you may find a firm that does both of these things well, that's unlikely given the different skill sets required. Ask people and professionals you respect for their recommendations. There's nothing wrong with calling people from a phone directory listing so long as you ask plenty of tough questions and really do your homework before you commit to hiring someone. Some professional associations or organizations that can assist you with finding the better financial planners include:

1. American Institute of Certified Public Accountants
2. National Association of Personal Financial Advisors