1.  Get a good lawyer.  An experienced, reputable, and ethical lawyer who specializes in your type of problem is absolutely essential if you want to stop the bill from becoming unmanageable.  Someone who is fumbling their way through your case because they don’t have the knowledge and expertise necessary is going to end up costing a lot more and delivering a lot less.  So find the right person for the job from the outset if you want to avoid excess charges.

2.  Settle out of court if possible.  You might think you’re paying a load of legal fees now, with every piece of correspondence costing you hundreds of dollars, but the big bucks don’t start flying until you get to court.  If you’re facing the type of lawsuit that will require you to pay out if you lose, you may want to think about settling before the case ever sees the inside of a courtroom.  Remember that your lawyers have to be paid regardless of a win or a loss.  The common adage is all too true: nobody wins but the lawyers.  By settling out of court, you may effectively cut your losses in the long run.

3.  Ask about flat fees.  Most law firms charge hourly for their services, which can quickly result in a hefty price tag.  But there are certain areas, like contract preparation, that may be offered at a flat rate.  If this is the case, you can probably save quite a bit over the hourly rate and still get the same great service.

4.  Opt for legal aid.  This may or may not be a genius idea.  Legal aid is, of course, free as it is provided by the state for those who cannot (or will not) pay for legal counsel.  However, any lawyer worth his salt is probably making beaucoup bucks with a reputable firm rather than wasting away working for the state.  So you’re basically scraping the bottom of the barrel when it comes to attorneys.  They’re overworked and undereducated, by and large.  So while you can certainly save on the cost of representation by choosing legal aid, you might end up losing big in the long run, especially if your case is complex.

5.  DIY.  A law firm will charge you a minimum fee for absolutely everything they do for you, whether it’s a five-minute phone call, ten minutes spent drafting a letter, or hour after hour of research on precedents for your case.  But some of these things can be done by you.  If, for example, your case requires personal documents, you can compile them instead of letting your lawyer charge you for the time it takes to secure the same information from the hall of records (or wherever they go to get it).  Ask for a listing of ways you can help and you’ll definitely cut down on your overall bill.

Emma Martin writes for Corboy and Demetrio, a personal injury law firm based in Chicago, Illinois.  Corboy Demetrio Law Firm is one of the nation’s premier practices.

Lack of Communication: Financial advisers should be in touch with you in good times and bad. If you are trying to reach your planner to discuss your portfolio during these rocky times in the stock market, and you can’t get a call back, that is not a good sign. Chances are he or she does not have an answer for you or is not confident in how to protect you from the downside.

Churn: If your financial planner is recommending excessive trading and moving you in and out of stocks or mutual funds, get rid of him or her. Chances are they are working with their commission check in mind, not your portfolio performance.

Unusual Offers: If your adviser is pushing stocks or funds with very low trading volume, low float (or a small number of shares on the market), or stocks that are extremely cheap, it’s a good time to start asking questions. Chances are they have the brokerage firm’s interest in mind, not yours. According to Investopedia.com:

Brokerage firms sometimes hold positions in certain stocks or bonds that may not be of the highest quality. They know that they can’t dump them on the open market, or the selling pressure will collapse the security’s price. Instead, they often offer incentives, such as higher payouts, to their brokers to push these stocks or bonds to their clients over time.

Poor Performance: While your investments need to be looked at a long-term perspective, the performance of your financial planner should be in-line with the performance of the overall market. While from time to time your portfolio may under perform when compared to the S&P 500 or the Dow Jones Industrial Average, this should not be consistent and your adviser should have a sound explanation.

Dishonesty: If you find out your financial adviser lied or stretched the truth, do not work with them. While something as major as lying about their credentials or how they are paid should be reported, minor inconsistencies should also arouse suspicion. They should also be able to take responsibility for their performance. You can’t win all of the time, but you should have the ability to admit a mistake when one is made.

Incomplete Analysis: Most financial planners are specialized in certain areas and have strengths in particular investments. Be wary of those who are only looking at that specific area of your portfolio rather than the whole. This can increase your risks as diversification is minimized.

To do a quick background check on your financial planner, visit www.brokercheck.finra.org to see if any disciplinary actions or complaints have been filed. Be sure to also verify they are actually a certified financial planner by visiting www.cfpboard.org/search.

Millionaire Money Habit: Your money is your early retirement. Don’t be afraid to have high expectations of your financial adviser and fire them when things are not going the way you planned. There are plenty of fantastic advisers who will do a better job managing your finances and investments. -RT

In Paying for Financial Advice we discussed how it is important to find out how your financial advisor is paid in order to understand exactly what their best interests are. While asking how they are paid is an important question to ask, it is not the only one. So how do you find a good financial adviser?

There are a couple of recommendations that are frequently offered, which I do not agree with:

• Ask a Friend for a Referral: Ask yourself, do your friends really know the difference between a good financial adviser and a bad one? They may have recently had a good year as a result of their advisor’s recent stock picks, but this does not measure long-term performance.
• Ask Financial Advisers How Well They Do: It is often recommended to ask for a firm’s “top advisers,” or to ask a financial planner how well he or she did for himself/herself in the past few years. The problem here is that if they are on a commission based schedule, their high performance does not necessarily mean their clients’ portfolio performed well. They could have just been very successful at selling funds that paid a high commission and convinced clients to trade frequently. Both of these have been shown to actually return poorer results than just a plain vanilla index fund that tracks the S&P 500.

So What is the Best Way to Find a Great Financial Planner?

In the personal finance world, experience is valuable. A financial planner who has years of experience and can back it up with results will cost you more money. That, in my opinion, is the cost for insurance and making more money in a good market and losing less in a bad. You can find out their track record by simply asking, but you should also do a background check with the SEC to see if he or she has any complaints on record.

While interviewing your potential financial planners, find out what their strategy is and what they personally own. This will tell you if you have the same goals and share the same philosophy. Find out how much risk they take with their clients’ portfolio. Also ask them what products they believe the most in and which one’s they would like to learn more about. This will tell you if they are honest and also give you some insight on what products they will be recommending.

The relationship you have with your financial planner is also important. If you don’t communicate well together and do not share an open, honest relationship, your money is at jeopardy. Make sure he or she is clearly able to communicate objectives, strategies and products. If you don’t understand then you shouldn’t be investing with them.

Spend enough time interviewing the financial advisers to be able to sufficiently tell if there is a personality clash. Find out how long his or her clients have been with them and ask for references. Don’t be afraid to call the references and ask how often they meet with their financial planner to review their portfolio.

What are some questions you ask when interviewing financial advisers?

Millionaire Money Habit: When shopping for a financial planner, do your due diligence. Your money and your retirement is at stake, and the process of finding a highly-qualified, highly-capable financial adviser should not be taken lightly. -RT

Be sure to subscribe to the RSS feed or by email to be notified about upcoming article in the series, When to Fire Your Financial Adviser.

Financial advisers do not work for free. They make money off you, the client, in one form or another. How they make their money varies, and they may not be compelled to make you any richer.

How investment advisers are paid is an important factor to understand and consider when searching for the best person to give you money advice. Typically financial planners are either commission based or charge a fee based on the workload.

• Commission Based: Commission based financial advisers are paid the sales load you are charged from products they recommend and you purchase.
• Fee Based: Fee based financial advisers are paid by a pre-determined fee for their services. This may be an hourly fee, a flat fee or a percentage of the assets they are managing.

While both pay structures have their plus and minuses, there seem to be some overwhelming benefits to using a fee-based financial planner. Take this example from Investopedia.com:

Making a $50,000 investment in a fund with 5% load would translate into the equivalent of more than 14 hours of portfolio planning undertaken by a fee-only adviser at $175 per hour! If you were to hire an adviser for 14 hours at that rate, you could expect him or her to accomplish a great deal of work that would produce a more balanced portfolio, returning a potentially higher rate than the loaded mutual fund. The fee-only type of compensation provides investors with the opportunity to get more service out of the money they spend on professional advice and stock-picking expertise.

Since commission based advisers are paid from the products they sell, they have an incentive to promote frequent transactions and recommend products that pay them the maximum trading commissions. Customer-focused commission based financial planners would want to produce a high-performance portfolio in order to keep your business, but be wary of those who are ultimately concerned with their bottom line. Their interests are with getting you to do more buying and selling.

Fee based advisers, on the other hand, are not financially vested in selling you a specific product outside their own services, and may be more in the client’s best interest. They are said to provide more objective financial advice. They could try and stretch out the time they spend working on your portfolio in order to make more money, but a good adviser will have enough on their plate to keep them busy.

When is it appropriate to use a one type of adviser over the other?

While fees and pay structure should be considered, it should not be the only factors when choosing a financial planner. A financial planner that is well-rounded, experienced and can back up his work with a history of high performance should be first and foremost. Integrity and an honest, open relationship is also important.

Otherwise, commission based financial advisers may be more suitable for people with smaller portfolios and those just starting out with their investing career. The fees and charges you incur with a limited capital to invest with will be largely insignificant in the long run.

Since fee based financial advisers are generally more capable at looking at your portfolio as a whole, including real estate, they are recommended for those who have a larger portfolio. A large investment portfolio requires more attention to detail, and frequent monitoring of asset allocation, and a fee based adviser will provide more bang for the buck. Likewise, this type of adviser may be better for those who need one-time consultation for more complex situations, such as estate and tax planning.

Millionaire Money Habit: As investment decisions are made, it is important to consider fees and tax implications when choosing an appropriate financial adviser. While the pay structure should not be the only factor to be considered, it is an important part of the details. -RT

Be sure to subscribe to the RSS feed or by email to be notified about upcoming articles in the series, How to Interview Financial Advisers and When to Fire Your Financial Planner.