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I know that I should find a financial advisor to help my wife and I plan what to do with our growing incomes. However, I have no idea how to pick a good financial advisor and keep hearing how bad many of them are. Any advice on this subject, even if it is just a reference to a decent guide?

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I used to work in financial software and very much disagree with aspiringsensei's advice. There's a huge adverse selection problem with financial advisors: the ones who are any good at managing money can make far more at Goldman Sachs, which tends to leave the people who don't really understand what they're doing advising the retail investors. The advice my sister got when she talked to a "good" (recommended by her employer) financial advisor was atrocious: it was based mostly on the theory that large dividend-paying companies never go out of business, which seems rather ironic considering he worked for Merrill Lynch, a large dividend-paying company that nobody would imagine would go out of business, and yet...went out of business in 2008.

I'd start by educating yourself on the mechanics of the market. Read A Random Walk Down Wall Street, read Benjamin Graham, read Warren Buffett. Learn to read an income statement and a balance sheet, and look at some historical stocks with income and assets in mind. Figure out how you would manage your money if you had infinite time. Then if you want, hire a financial advisor that manages money the same way you would, except has the time that you don't to actually investigate companies and keep an eye on their financial performance.

Also, keep in mind that an index fund is effectively free financial advice (that you always follow) from every market participant. Essentially, you're saying "I don't have time to make my own investment decisions, so I'm going look at the average of what everyone else is doing, and do that." That average will include everything from Goldman Sachs money managers and Warren Buffett down to retail investors and financial advisors. It's capitalization-weighted though, so the people with the most money's "votes" count the most, which is usually what you want.

I don't think we'll come to agreement. There are bad FA's out there. Your wife got bad advice, and bad advice is out there. I certainly agree that a lot of FAs are meatsticks who should be locked away.

But I think our dissonance comes from a place you might not expect. I view the prime contribution of a financial advisor to be the construction and adherence to a financial plan with clearly stated assumptions and goals.

I don't think most investors can do this on their own, and I don't think reading "A random walk down wall street" will help them.

Personal investors are poorly served by a mentality which suggests aiming for the highest total return is their goal. They should instead seek to generate a return which will provide for their needs.

Also, equal weight indexes tend to broadly outperform cap-weighted indexes, fyi.

Here are some good questions to ask yourself, questions your advisor should ask you, and questions you should ask your advisor.

If you can get clear answers to all this stuff, you're doing pretty well.

full disclosure: I work for this organization. Interested to hear what you think about the site & etc.

http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_a...

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