BOSTON (CBS) – It is always flattering when a listener asks if I will be their financial planner. I already am everyone’s financial planner by giving advice on the radio! I just don’t see individual clients. All I do is financial education.
So how do you find a good financial planner then? Begin by asking your friends, work associates and relatives if they use a financial planner. Speak with your other professional advisors such as your attorney, or accountant, tax preparer and ask who they would recommend.
You want to find a planner that will understand your particular situation and needs. If you are a school teacher you don’t want your sister-in-law’s planner who works primarily with small businesses. You want someone who understands the Massachusetts’ Teacher’s Retirement System.
I have bias here; I think you should be talking to a Certified Financial Planner (CFP). A CFP in order to be licensed must have passed a comprehensive exam that covers the key aspects of financial planning. They must have experience in the financial planning field prior to receiving the right to use the CFP designation after their name.
They have continuing education requirements of 30 hours that must be met every two years and they must sign a code of ethics. Now will this guarantee you the very best person in the world? Not necessarily! But you will at least have equalized the playing field in your search.
After getting some referrals, you should plan to interview several planners. Realize that they will be interviewing you as well.
Many advisors offer a free introductory consultation. During this interview, you will have the opportunity to ask questions about the planner and their firm. Don’t be afraid to ask tough questions, remember this is your money.
How a financial planner is compensated is very important. Here’s a look at four different ways planners are compensated.
Before you hire any financial professional—whether it’s a stockbroker, a financial planner, or an investment adviser—you should always find out and make sure you understand how that person gets paid. Investment advisers generally are paid in any of the following ways:
- A percentage of the value of the assets they manage for you;
- An hourly fee for the time they spend working for you;
- A fixed fee;
- A commission on the securities they sell (if the adviser is also a broker-dealer); or
- Some combination of the above.
Exercise caution when choosing a money manager and never give them discretionary power over your money.
- Fee only planner. These planners charge an hourly fee, a flat fee for a comprehensive plan or they may be retained on an annual basis. Fee only planners do not earn any compensation from the investments they recommend.
- Commission only planner. A commission only planner will review your situation, offer advice and they earn their compensation when you purchase an insurance product or a financial product such as a mutual fund from them. When dealing with a commission only planner exercise caution for their only source of income is the revenues generated from selling.
- Fee and commission planner. Often referred to as a fee-based planner, they are compensated from both sales and fees. This has become the most popular form of financial planning compensation. You pay an hourly fee to meet with the planner and receive their advice. If you choose to purchase financial products from the planner, they will earn a commission on the sale of the product.
- Money Management. These planners manage your investments for you, charging a percentage of the assets under management for their fee. The fee is usually around 1% depending upon the amount of money you have invested. The more money you have invested the smaller the percentage charged.
One more thing: Questions to ask when selecting a financial advisor -
Regulatory Compliance: http://www.sec.gov/investor/pubs/invadvisers.htm
If an individual or a firm holds themselves out as providing investment advice, they are required to register with the Securities and Exchange Commission in Washington. (SEC Investment Hotline 800-732-0330)
Are you registered with the Securities and Exchange Commission? If not, is you firm registered? (Individuals may be covered under blanket registration of the firms they work for) Ask for copies of the forms (ADV part II) they file with the respective regulatory bodies. These forms list their education and experience. If the planner is not registered with the SEC, is she licensed by the state?
Background and Experience:
What credentials have you earned? What is your educational background? How long have you been practicing financial planning? May I have a list of references? If you get a list, follow up and call the individuals.
What kind of services do you offer? Will you prepare a complete or partial financial plan after listening to my goals? Do you sell financial products? Do you manage investments for a fee? Do you review client’s taxes? What kind of client do you generally service? Do you have a minimum account size? What continuing service will I receive after the initial plan? How often do you send out portfolio reports? What are your research methods and sources?
How is the firm paid? May I have a written estimate of what the fees will be? Do you have a printed fee schedule available?
Where to find a planner
The organizations listed will send you names of planners in your geographical area.
National Association of Personal Financial Advisors (NAPFA)
3250 North Arlington Heights Road,
Arlington Heights, IL 60004
(NAPFA has a membership of fee-only planners. Membership: 1,000+)
Garrett Planning Network
12700 Johnson Drive
Shawnee, KS 66216
A network of fee-only financial planners willing to work with consumers on an hourly, as needed basis. This is new organization with only a small number of planners.
What the Alphabet soup means:
CFP: Certified Financial Planner –
Planners who have met educational and experience requirements, agreed to abide by a code of ethics and passed a national test administrated by the CFP Board of Standards. The exam covers insurance, investments, taxation, employee benefits, retirement planning and estate planning.
RIA: Registered Investment Advisor –
An individual who has registered with the Securities and Exchange Commission and holds themselves out to be an investment advisor is a registered investment advisor. This registration is required of anyone who for compensation and as part of a business gives advice, makes recommendations, issues reports or furnishes analysis on securities either directly or through publications. If a planner is an employee of an advisory firm such as a brokerage house, the brokerage house will have a blanket registration for all employees with the SEC.
CPA: Certified Public Accountant –
This is an experienced accountant who has met educational, statutory and licensing requirements of the state they reside. CPAs do auditing and tax returns and leave the financial planning advising to the Personal Financial Specialists in their field.
AICPAPFP: American Institute of Certified Public Accountants-Personal Financial Planning Specialist –
Personal Financial Specialists are CPAs who have passed a financial planning exam, have practical experience in financial planning and are members of the AICPA.
CFA: Chartered Financial Analysts –
Designation awarded by the Institute of Chartered Financial Analysts to experienced financial analysts, who have passed exams in economics, financial accounting, portfolio management, security analysis and standards of conduct.
ChFC: Chartered Financial Consultant –
Designation awarded by the American College of Bryn Mawr and is the insurance industry’s financial planning designation. Consultants must meet experience requirements and pass exams covering finance and investing.
CLU: Chartered Life Underwriter –
This designation is awarded by the American College of Bryn Mawr. The recipients must have business experience in insurance planning and related areas and pass national examinations in insurance and related subjects.