BOSTON (CBS) – 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 dentists. 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 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.
After getting some referrals, you should plan to interview several planners. 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.
Financial planners are compensated in a variety of ways.
- 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. These planners 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. Exercise caution when choosing a money manager and never give them discretionary power over your money.
One more thing:
Questions to ask when selecting a financial advisor
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.
Financial Planning Association (FPA)
7535 E. Hampden Ave.
Denver, CO 80231
National Association of Personal Financial Advisors (NAPFA)
8700 W. Bryn Mawr Avenue, Suite 700N
Chicago, IL 60631
NAPFA has a membership of fee-only planners.
Garrett Planning Network
103 E. Van Buren, #140
Eureka Springs, AR 72632
A network of fee-only financial planners willing to work with consumers on an hourly, as needed basis.
You can hear Dee Lee’s expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
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