Many small-business owners are hesitant to engage a personal financial advisor. But here’s why–and how–you should Interview a Financial Adviser.
Many small-business owners have achieved success by taking a “hands-on” approach to running their companies. Having full control over your business’ operations gives peace of mind because after all, no one is going to care about your business like you do. But that attitude can actually lead to serious problems when it comes to managing your personal finances, as many small business owners hesitate to let someone else—like a financial adviser—get involved with their money.
This hesitation can be financially perilous for small-business owners. A recent study by The American College, a nonprofit financial services educational institution, shows that:
- Six out of ten small-business owners have not consulted with a financial adviser
- Three out of ten small business owners have not estimated how much capital they will need to have a comfortable retirement
- Fewer than one-third of small business owners have a formal financial plan for managing income and expenses during retirement
- Fewer than a quarter have a formal plan for transitioning their business to new management and ownership when they are ready to retire
A financial adviser can provide the skills, information and discipline required to ensure that you and your family can enjoy the fruits of your labor after you are no longer able to work at your company. Where a business owner needs to focus their efforts is on selecting the right adviser. The best way to do that is to interview multiple people and ask the following questions:
1. How do you charge for your services? There are two compensation models for financial advisers: commission-based and fee-based. The former won’t charge you for the advice they provide; instead they make commissions on the financial products they sell you. The latter will charge you a fee for their time and advice. Typically the fee is structured as a fixed amount, like an hourly rate or a percentage of your assets under management every quarter. Personally, I believe the latter is a better deal; there is full transparency on how the adviser makes money and doesn’t leave as much doubt as to the purpose of their advice which can be the case with commission-based advisers.
2. What experience do you have working with people like me? There are financial advisers who specialize in working with small-business owners. You should place high value on this experience when evaluating potential candidates.
