Nothing makes Americans happier than having their finances organized. At least that’s what 92% of U.S. adults said in Northwestern Mutual’s 2019 Planning & Progress Study — they are happiest and most confident when their “financial house is in order.”

While it may seem like ice cream or puppies would be more likely to elicit that kind of response, other surveys and studies have shown that Americans generally do feel more confident and secure when they know they’re on track with their financial goals. Perhaps unsurprisingly, those with a financial advisor are even more likely to feel that way.

Getting help with your financial decisions isn’t a bad thing. But with so many professionals and options out there, how do you go about choosing the right expert to work with? When picking a financial manager, what are some things you need to put into consideration? Find answers to these questions in this article.

• Your 6 Step Checklist When Picking a Financial Manager
• How do you Evaluate a Financial Manager?
• How much Money should you have before hiring a Financial Manager?
• Can a Financial Manager Steal your Money?

Your 6 Step Checklist When Picking a Financial Manager

1. Determine if you need a financial advisor

Financial professionals can be a big help when you’re trying to map out your future, but you don’t need to hire one to be successful with your savings and investment goals.

Read Also: The 7 Types of Financial Planners you Need to know about

If your employer provides a 401(k), for example, many times the plan will offer the option to invest in target-date funds. These types of investments will keep your retirement savings on track without too much-required oversight from you or a financial professional.

You still may need additional investments, such as an individual retirement account and a taxable brokerage account. If you’re the kind of person who likes to be super hands-on, you can sign up for one of the brokerage firms such as Charles Schwab and TD Ameritrade.

Yet creating and maintaining a balanced, diversified portfolio can take a lot of time and research. If that feels overwhelming, you can always work with the so-called robo-advisors, which typically manage your money for you.

These platforms — which include Betterment, Schwab Intelligent Portfolios, Vanguard Personal Advisor Services, Ellevest and Wealthfront — are generally less expensive than working with a human financial advisor, but they may not provide the same level of customized advice and solutions.

Maybe you don’t want to map your financial future on your own, or you have a more complex financial situation, such as stock options or perhaps you help out with family financial obligations. That may require a face-to-face conversation with a human financial advisor or planner.

And these professionals usually go beyond just building portfolios. They offer a wide range of services to help achieve your goals, such as helping create a budget and plan to save for a home or selecting the right 529 college savings plan for your family or even creating tax efficiencies with your investments.

2. Consider what type of professional you want to work with

There are two types of legally defined financial professionals: brokers and investment advisors.

Generally, brokers are registered with the Securities and Exchange Commission and overseen by the Financial Industry Regulatory Authority, a self-regulatory agency for the financial industry. Brokers are allowed to buy and sell stocks, bonds, mutual funds, annuities and other investment products on behalf of their clients.

Traditionally, brokers were considered sales personnel under the law and only needed to recommend investments that were suitable for you, even in cases where better options existed. Under rules rolled out by the SEC over the summer, these professionals must now act in your best interest when working with your money.

But some consumer advocates claim that the new rules are weak and don’t go far enough to eliminate conflicts of interest that can arise, such as accepting payments for recommending specific products.

But financial professionals can also be registered as an investment advisor and, in that role, are overseen by the SEC and state securities agencies. Investment advisors can manage investment portfolios — including buying and selling stocks and funds — and provide advice on your investments.

Under SEC rules, these professionals need to act as a fiduciary, which means they must put your interests ahead of their own and eliminate conflicts of interest as much as possible.

Here’s where it gets tricky: No one really uses these terms on their business cards. Because that would be too easy, right? Financial professionals these days go by a lot of titles: financial advisor, financial planner, money manager, wealth manager, etc. And many are registered as both brokers and investment advisors.

If you’re looking for someone who will provide holistic financial advice, experts usually suggest you work with a certified financial planner. Those with a CFP designation have a bachelor’s degree and have passed a rigorous exam to verify that they understand all of the core aspects of financial planning.

Typically, financial planners are registered as investment advisors and need to adhere to a fiduciary standard. Plus, under the new rules that went into effect in October, all those with a CFP must act in the best interests of investors.

3. Gather some names

It can be easy to simply walk into your bank, or stop in at the local Charles Schwab office with the plan of finding a financial professional to work with. And while those can be good options, you should still do some research and gather a robust list of candidates from a variety of sources.

Many times, there are unaffiliated financial professionals who may better suit your needs, even if that means adding another financial firm to your roster.

Talk to your family and friends to get a few recommendations. Roughly one in four Americans get financial advice from their parents and friends, so you’re in good company turning to those closest to you for tips.

Another good starting point is looking at the major industry associations. The Financial Planning Association and the National Association of Personal Financial Advisors offers tools (the Planner Search and Find an Advisor, respectively) where you can look up professionals in your area.

You can also search advisor directories operated by the Garrett Planning Network or the XY Planning Network. Both organizations provide the option to hire a financial planner who works by the hour if you’re just looking to get some specific questions answered.

You may also come across financial professionals with an alphabet soup of designations after their names. Keep in mind that not all of these certifications are equal. But there are a few that require advisors to master a range of subject areas and pass rigorous tests, including the CFP, the Chartered Financial Analyst (CFA) and Chartered Financial Consultant (ChFC).

The governing body behind these designations can also be a smart place to look for a financial professional for you. The CFP Board offers a helpful search tool where you can customize your results by the planner’s specialties, compensation model, primary language and how much you have to invest. Meanwhile, the CFA Institute has a searchable member directory.

4. Do a background check

When hiring a financial professional, make sure you do some research before hiring anyone to manage your money. The industry makes it a bit easier for consumers by making financial advisors’ professional backgrounds available to search.

You can look up advisors via BrokerCheck. The site shows you how long they’ve been in the industry, which firms they’ve worked for and whether they’ve had any consumer complaints or regulatory issues, referred to as a “disclosure event.”

Those who are registered as investment advisors will also have a record with the SEC, so make sure you check out that information as well. You can access the SEC records through BrokerCheck or do a separate search through the SEC’s investor information website.

If the professional does have a disclosure, it may not be a deal breaker. Sometimes financial advisors and planners have consumer complaints, but they have been resolved or the event pertains to a personal bankruptcy. If there is anything listed, make sure to investigate it fully before making a decision.

In addition to running their name through BrokerCheck, if the financial planner is a CFP, the organization offers a search tool in which you can verify their status, as well as see if they have any disciplinary history and bankruptcies.

Do a quick Google search on any of the professionals you are considering as well, and pay attention to local news and information released by state securities agencies. Many times if a financial advisor or planner is going through a civil or criminal case, their records may not reflect it until the case is wrapped up.

5. Set up an introductory call or meeting

Beyond doing your homework online, it’s also helpful to meet the advisors in person before you hire them. This is someone you’re going to take financial advice from and potentially working with for years to come, so it’s important that you understand how they conduct business and make sure you click with their approach.

In addition to asking them about their education, qualifications and experience, you may want to ask about all the services they provide and what type of clients they typically work with. For example, if the advisor usually works with high-income lawyers and you’re barely scraping by, their specialized advice may not be as helpful for you.

At the end of the day, you need to feel comfortable with your advisor, so take the time to thoroughly interview any candidates. If working with them makes you feel like you’re going to the dentist for a root canal, you’re less likely to take their advice and regularly meet with them.

6. Ask how they get paid

During the initial meeting, you need to find out how the advisor makes money and the all-in costs you can expect to pay to work with them. It can be awkward to ask, but it’s critical that you understand what their expense structure is like, as it can affect how they give advice.

Many financial professionals will bill themselves as fee-based or fee-only. On a whole, financial professionals earn money for their services one of five ways:

1. Assets under management: Investors pay advisors a percentage of the amount of money they manage. Typically investors with less than $1.5 million in assets pay between 1% and 1.5% in fees, according to Boston-based research firm Cerulli Associates.
2. Flat annual fee: A retainer-like expense paid by investors and is generally between $1,500 and $3,000
3. Hourly fee: Expense paid by investors and offered as a pay-as-you-go option of advice
4. Per-plan fee: Typically one-time fee investors pay for a comprehensive financial plan
5. Commissions: Fees paid to an advisor based on selling a specific product or trading securities

Financial planners who operate on a fee-only basis only receive payment from their clients — that can take the form of AUM, a flat annual fee or an hourly fee. In theory, if a financial professional is fee-only, it means that their advice is not conflicted because they’re not receiving compensation from outside sources that could sway their recommendations, such as mutual fund companies and insurance firms that offer annuities.

However, these planners may be more expensive for you to hire, so you should review their fee and feel comfortable with the payment level.

Fee-based financial professionals, on the other hand, can include financial advisors and even some financial planners, particularly if they’re associated with your bank or one of the big brokerage firms.

These advisors earn their paycheck not only from you but also through compensation such as securities spreads, insurance commissions, and mutual fund shares. They can be less expensive on the outset, but if they’re providing conflicted advice, it may cost you in the long run.

Not quite sure how a potential financial advisor is compensated? You can typically search their firm’s SEC filings, which includes a comprehensive breakdown of the company, including how their professionals are compensated.

All things equal, most investors should opt for a fee-only financial professional, even though these planners may be more expensive for you to hire at the outset. That’s because they won’t have any additional revenue streams to offset their prices. At the same time, you’ll be able to feel more confident about their motivations and that the comprehensive advice they give can help you find your best financial path forward.

How do you Evaluate a Financial Manager?

There are a lot of people willing to give advice on almost any financial topic. Investment managers, brokers, bankers, insurance agents, accountants, mutual fund companies, and financial planners fill the online and printed listings. It seems like everyone is a financial adviser! Where should one start when there is so much information and so many people willing to give advice?

Below is a six-step checklist to help university professionals evaluate financial planners.

1. Is your financial planning comprehensive?

Many individuals feel they have comprehensive financial planning because they have an adviser managing assets or focused on investments. A comprehensive financial planning approach for university professionals will address three core aspects: investment planning, retirement planning and income distribution, and estate planning.

A coordinated financial plan will also evaluate the relationship between the three areas and how decisions in each facet will have an effect on the others. Your financial needs are complex, and having an adviser is a great start. But make sure they have resources to assist with asset management, retirement planning and estate planning. If not, that is the equivalent of a blind spot in your future plan, and you may want to research alternatives.

2. Is the adviser a fiduciary?

Why all the fuss over the commissions paid to brokers and the high cost of some investments? Most people want objective advice; they don’t want to be sold a product. In order to find this advice, it’s important to evaluate the source of the information itself. If a salesperson is paid by commission, then it stands to reason he or she may be motivated to sell investment products. Why not remove this obstacle at the beginning of the process?

Simply ask the adviser: “Are you a fiduciary? Do you represent me first as your client? Do you have the legal duty and responsibility to represent my interest above all others? In other words, are you a buyer’s agent or a seller’s agent?” There is no middle ground to this answer; there’s no riding the fence. The adviser either represents the client or represents the product providers. An adviser that is paid by the client, and not the sale of a product, will be the most objective.

3. Does the adviser work for a vendor or custodian?

One of the many advantages of being a university employee is the access to great vendors that administer university retirement plans. There are many  vendors incorporated into university retirement plans like TIAA, Fidelity, and Vanguard being some of the most common.

These custodians offer a great low-cost investment platform and also offer unique investment opportunities you cannot get outside of these plans. Many of these custodians will also have individuals who can help give you advice on investment selection and retirement planning.

As good as these vendors are there are several questions to consider. These vendors are motivated to custody assets the same way as investment brokers are outside of the university. For example, if you have an adviser who works for vendor A, but you also have assets located with vendor B, the adviser cannot advise you on managing those assets.

In order to incorporate all of your assets in their planning, they will encourage you to consolidate all assets with them. Often times this might not be in your best interest, as each custodian has unique strengths and opportunities. It is important to understand what those are.

4. Wholesale or retail rates on mutual funds?

With literally thousands of mutual funds in the marketplace, how should one evaluate funds from a cost standpoint? Although this can appear to be a very daunting task, here is how to cut through it with ease.

Most of the investments that are available in university retirement plans have very low expenses, especially when compared to investments sold by brokers. This is true for both the initial acquisition costs and the ongoing expenses. These low costs are a great benefit to participants, particularly when the market is going sideways. Low market returns while paying high expenses is not a winning combination.

The easiest way to increase returns without increasing risk is to lower expenses. Investments purchased through university plans are getting the advantage of wholesale rates. When purchasing investments as an individual, higher retail rates are the norm.

Consider the purchasing power of a large university compared to the average small investment purchase of an individual. The difference is really that of buying investments at wholesale vs. retail prices. How big is the difference between wholesale and retail rates? Huge!

Many times investment brokers will recommend mutual funds as a possible investment alternative. But there is no logical reason to purchase high-cost, commission-based funds through a broker. Mutual funds carry labels that indicate if commissions are paid on that particular fund.

Class A funds pay commission out of the initial investment. The typical commission can be 3 to 6 percent. Class B funds have a back-end surrender charge at the time of liquidation. Don’t settle for Class A or Class B funds, which are retail purchases.

High-commission, high-ex-pense and backend-sur-render penalties equal a profitable deal for the broker and a bad deal for you. Avoid them. Instead, use no-load funds.

No-load funds have low administrative fees and do not have front-end or back-end commissions. Better yet, invest in institutional funds that have extremely low costs.

5. Is the planner pushing IRA rollovers?

An IRA rollover is the transfer of investments from a retirement plan to an individual account without income tax liability.

In general, an IRA rollover is not bad, but before you implement an IRA rollover, the reasons for doing it should be completely clear.

Never complete an IRA rollover for someone else’s reasons. A broker who’s paid on sales commission is transaction motivated. They get paid when you transfer investments from the university plan into the investment products they are selling.

In other words, be aware that you are moving money from a low-cost investment into products that may have high sales fees and other expenses attached to them. When considering an IRA rollover, brokers motivated by commissions are not what you are looking for.

One major reason why a retirement plan participant would choose to do an IRA rollover is to have access to investment choices that are NOT available under the university retirement plan.

6. Be wary of annuities

Investment brokers love to sell fixed and variable annuities. Annuities, in reality, are insurance products manufactured by life insurance companies. Fixed and variable annuities can be excellent financial investments and do have their place in an investment portfolio.

Be aware, however, that when annuities are sold by brokers, they have front-end commissions of 2 to 9 percent or more, and even with large purchases by the investor, these commission rates are not reduced. This is why brokers love to sell them.

Investors get price breaks on mutual funds. This is not the case with annuities. A $1-million transfer from a university retirement account into an annuity with a commission of 5 percent will bring the broker $50,000 in commissions.

In addition, an annuity has substantially higher internal expenses than a mutual fund. You can expect these annual expenses to be 1.5 to 2.5 percent. That means $15,000 to $25,000 per year is siphoned off a $1 million annuity investment before the balance is invested.

In addition to the huge front-end commission and high internal expenses, most annuities have back-end surrender charges. The annuity investment will lose as much as 9 percent or more of its value if the money is distributed in the early years. High front-end charges, high internal charges and early-surrender charges make for a very high-cost investment choice.

How much Money should you have before hiring a Financial Manager?

Most people make assumptions when it comes to not using a financial manager. The assumptions generally are: my life is not complex enough to need one; I am smart enough and do it myself; advisors are not trustworthy; I am not rich enough.

So how much money do you need to have in order to have a financial advisor?

The answer is zero.

If you have not one stock, bond, or retirement account, the kind of financial advisor you then can get, and should get is called a financial planner. What a financial planner does is look at everything in your life that involves money, and comes up with a blueprint if you will, of how to achieve your goals.

They look at your income, your expenses, your savings, literally everything you spend money on and tell you the truth about how to get where you want to be. They can charge from as little as $75 per month, up to thousands of dollars for one-time financial plan if your life is particularly complicated.

Now what about if you do have an investment portfolio, and you want advice on how to better invest it. How much do you need to justify a financial advisor? Again, the answer is very little. There are advisors that literally have no minimum. In this case, they too will charge either an hourly fee, monthly fee, or flat fee to opine and adjust your portfolio.

On the other hand, many advisors do have an investment minimum, as most advisors charge 1% of your assets to manage your money on an ongoing basis and need a minimum in order for them to justify taking on a client. It is common for advisors to have an account minimum of $250,000; $500,000, or millions. To reiterate, there are many advisors however that have small minimums like $25,000 or no minimum at all.

The great news for consumers and investors is that in todays world, services like MyPerfectFinancialAdvisor, and its competitors and websites all make it much easier to find out an advisor’s minimum so you don’t waste time speaking to an advisor that is not a fit.

Contrary to many people’s assumptions, you do not need to be a Jeff Bezos, a Rockefeller, or even a millionaire to have a financial advisor. These days you can find a qualified, licensed financial advisor regardless of your wealth or income level.

Can a Financial Manager Steal your Money?

Financial advisor theft comes in a wide range of different forms. In some cases, the fraud is incredibly complex, involving churning schemes, funds being routed through multiple different accounts, or perhaps even fake documents.

In other cases, financial advisor theft is flagrant, involving the forging of a customer’s signature or the outright conversion (theft) of funds.

If you have been the victim of financial advisor theft, it is normal to feel stressed out and overwhelmed by your situation. Becoming a victim is not only frustrating and emotionally distressing, but it can be financially devastating.

However, there are certain practices some financial advisers partake in to cheat their clients. The following are four warning signs to look for when trusting your financial adviser with your money.

Commingling

If your financial adviser commingles or adjoins his name, alongside yours, on the title of your investment account, it grants him unrestricted authority to use the funds at his discretion. Ensure all the statements you receive from the custodian have only your name appearing on the account.

The code of ethics for the Certified Financial Planner Board of Standards, Inc. outlines commingling as a violation of the SEC’s Code and Practice Standards, whereby any violation warrants disciplinary action such as potential revocation for the certificate holder to use the CFP certification marks after his name.

Churning

If on your statement, you notice a large number of trades occurring or an increase in transactions on your account without any substantial increase in value, your financial adviser could be churning on your account.

A financial adviser, or specifically broker, does this to increase his own commissions as he is usually paid whenever he buys and sells security. A way to avoid churning on your account is to open a wrap account where a flat fee is charged periodically instead of one based on trade transactions.

Scamming

If your financial adviser tells you of an investment that offers you a high return with low risk, and you instead notice your returns are staying pretty consistent, your investment could be tied into a Ponzi scheme, which generates returns for former investors by using the funds from newer investors.

Read Also: 20 Questions you Need to ask your Financial Planner

Moreover, Ponzi schemes are often a part of affinity fraud, which entails inflicting the scam upon members of certain groups, such as an ethnic community, religious community or the elderly. To avoid this, confirm that your investments and financial advisers and their respective firms are registered with the SEC, since the majority of Ponzi scheme investments involve unregistered firms.

Embezzling

If your financial adviser insists you play a minimal role in your investments and let him deal with the “burden” of your account, since it is his job, he likely wants to obtain from you a power of attorney to act on your behalf for decisions involving your investments.

This opens up great risk for the safety of your assets since your financial adviser is then able to legally trade upon your securities and move the return or the security itself into any account he chooses. To your greater detriment, your adviser could also transfer your money into his personal accounts, and although this act is illegal, it is costly and timely for you to pursue after the fact.

To avoid this happening, never grant power of attorney to your adviser. If you must, however, stipulate in a power of attorney agreement that upon granting power of attorney, your financial adviser is only permitted to trade your securities without notifying you but never permitted to draw upon returns or move assets from their original accounts. 

To protect your investments, be cautious when entrusting your money to others. Always validate your financial adviser’s credentials, background, and ethics record.