5 Things To Ask Your Financial Planner Before Signing A Contract

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July 7, 2014 1:14 PM EST

A financial planning scheme seems like a viable option to ensure that you have money for long term goals. However, do not immediately invest in any financial planner. Plenty of investors have fallen victim to unscrupulous companies that misappropriated their savings, thereby leaving them with only a fraction of what they invested or nothing at all. Here are some tips on the things to check first.

REUTERS/Daniel Munoz/Files
A man leaves the Commonwealth Bank of Australia building in central Sydney

1. Are they established?

Ask the financial planning company how long they have been in business. Be wary of new or startup planners since they still do not have any history or have not proven that they can properly care for your investment.

2. Are they solvent?

Being solvent means having enough financial capacity to pay for losses or reimburse you for the total amount of your investment should the scheme fail. The Commonwealth Bank forgery and fraud scandal at its ABC Learning arm is a notable case to study, because it forced the division to become insolvent and causing victims to lose majority of the money they put in.

3. What kinds of businesses are they involved in?

Financial planners generally invest your money in other industries then provide you with interest or shares in the returns. Ask about the industries or businesses that they entered into then determine if these are stable or excelling in the sector. Stay away from financial planners who cannot give you the full details or are in a business that might not likely turn up profits in the next few years.

4. Do they have happy customers?

Ask the financial planner to refer you to some of their loyal and satisfied clients. Those who have established themselves in the industry for years will most likely provide you with a list of names. These may be long term clients who have already received dividends for their savings. Talk to these clients and ask about the benefits and drawbacks of investing in such a financial planner.

5. What is in the fine print?

Have a lawyer go through the details of the contract first. Read the fine print since there may be stipulations that absolve the company from any liabilities if they incur losses. Protect your investment by only agreeing to terms where you can be reimbursed for your investment if the scheme fails.

Talk to a financial expert to give you a few of the most reliable financial planners available. Compare these accordingly to help you decide which one to work with. 

(Photo: REUTERS/Daniel Munoz/Files / )
A man leaves the Commonwealth Bank of Australia building in central Sydney
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