Investing your money effectively is a complex business. Do-it-yourself is a viable option, but only for a small portion of investors who can dedicate the time. This is why in most cases it is a good idea to rely on a professional. Easy, right? Not quite.
The financial advice industry features a bewildering array of professions, titles and designations, as well as a range of qualifications and trade bodies that individuals or companies may belong to.
Choosing the right adviser requires thorough due diligence. It's no wonder so many investors shortcut the process, opting instead for recommendations from friends and family members with limited financial knowledge. But is choosing an adviser really so difficult?
The process can be broken down into two parts. The first involves taking stock of your needs, and the second is to take what you just learned about your own needs and goals to identify an adviser who can help you meet them.
Here are five key steps to help you choose the best IFA For you:
What do You Need?
Are you looking for someone to take over management of everything, or just someone to do portfolio management and investing? Do you need someone to do a one-time checkup and financial plan or an ongoing relationship?
You need to determine not so much how the process will work, but what both sides expect from the relationship. Is there a specific issue, or a number of issues that require immediate attention?
Also give consideration to the investment philosophy that would make you comfortable. Do you want an adviser who prefers index or active funds or individual securities? Buy-and-hold or more active investment?
What Will You Pay?
Adviser compensation can get messy. One of the first questions to ask is whether the adviser charges a flat fee or a percentage of your assets. If a flat fee, make sure you understand exactly what you're getting for your money. A percentage-fee may be more attractive if you have a relatively limited pool of wealth for the adviser to manage, but may prove more costly if you have a higher net worth.
Make a Shortlist
Start by assembling a shortlist (no more than five possible candidates). Once you have done that look for references from trusted professionals you already know and work with, such as an accountant or attorney. You can also research their qualifications, which should be listed on the company website, and may want to take into account online reviews about their services.
Whittle it Down
Once you've generated a short list, get in touch with each candidate. Morningstar has developed a downloadable questionnaire adapted from Sheryl Garrett’s Personal Finance Workbook for Dummies which you may consider using.
Garrett recommends following up with in-person meetings with at least two finalists - consider this stage a little like an interview process. It might take some initial effort but you should end up with an adviser you like and trust at the end of it.
You should come into the meeting with an idea of what you are looking for and be very upfront (this is what I want; this is what I need). Garrett also advises paying close attention to the prospective adviser's style of communication and overall approach to working with clients.
Make the Hire ... But Don't Stop Now
Finally, it is time to pick an adviser. But the work doesn’t stop there. On the contrary, it is the beginning of a process that includes numerous discussions and planning. But if you've chosen well, it's worth it.
