Choosing a Financial Planner
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Do you need a financial planner? Maybe. A planner can be an invaluable playmaker for you, keeping a wide focus on your finances and instructing you on how to reach your goals. A talented planner may, in fact, act as the quarterback for your team of financial advisers, working closely with your specialists in taxes, insurance, investing, and the law. It’s worth hiring a financial planner once your household income approaches $75,000 or so. At that point you could probably use –and can probably afford –a little help keeping your financial house in order. Some people instead hire financial planners only when they need advice about a particular issue such as evaluating an early retirement offer, paying for college or budgeting better. That’s a smart strategy, too.
The trouble with financial planners, however, is that anyone can call himself one. By some accounts as many as 250,000 people say they are financial planners. Unlike a CPA or a lawyer, a financial planner is not required to undergo any specific training. In fact, some planners are little more than glorified insurance agents or stockbrokers, hoping to bring in business by adding a lofty title. The federal Securities and Exchange Commission ostensibly regulates registered investment advisers, but many planners don’t even bother to register with the agency. What’s more, SEC staffers are so busy, they rarely monitor financial planners until one gets into trouble. States regulate financial planners a bit more, but even their regulators don’t do regular inspections of planning firms. So it falls to you to do some due diligence before hiring a planner.
The financial-planning field is divided three ways, based on compensation practices. There are fee-only planners, who earn their living either by charging customers a flat fee or a percentage of their assets under management. There are fee-and-commission or fee-based planners, who charge fees and also earn commissions based on the investments and insurance policies they sell. Both types of planners will charge you for creating a written, comprehensive plan that looks at your whole financial picture from taxes to investments to estate planning. Figure on paying around $1,000 to 2,000 for such a plan and perhaps as much as $5,000. You may be able to get a shortened version for $300 or so. Some will manage your investments for about 1.4% of the amount under management, or for an hourly rate of $80 to $400. Finally, there are commission-only planners, who get paid only from the commissions they earn on what they sell you.
If you can afford one, a fee-only planner often is the best kind to hire. By not accepting commissions, the planner –possibly a CPA –can be unbiased in his or her advice. To find a fee-only planner near you, call the trade group known as the National Association of Personal Financial Advisors or NAPFA (888-333-6659; it’s also reachable through the computer on-line service CompuServe). NAPFA’s membership directory includes names, addresses, and phone numbers of fee-only planners around the country, as well as the number of years they have been in the financial-services industry and any professional designations.
If you can’t find a fee-only planner you like or can afford, try a fee-and-commission planner. It’s best to avoid commission-only planner; they have too much temptation to stick you in high-fee investments. Should you wind up hiring a fee-and-commission planner, don’t be shy about asking for advice whenever you need it, whether it’s what to do about the fact that the manager of a mutual fund you own just quit or how to establish a college saving strategy. If you’re not satisfied with his or her responsiveness, take your business elsewhere.
One way to narrow the field of planners in your area is by meeting only with ones who have legitimate professional designations. As with the CLU and ChFC initials, these don’t guarantee Solomonic wisdom or pristine ethical behavior. However, there is some comfort in knowing that the planner is serious enough about his or her profession to have some technical schooling. There are three meaningful designations other than ChFC to look for when choosing a planner. A CFP is a certified financial planner who passed an exam administered by the College for Financial Planning in Denver; for names of CFP’s in your area, call the Institute of Certified Financial Planners at 800-282-7526. Any planner you choose should be a CFP. A CFP is chartered financial analyst, which is a title given to someone who passed an exam about investments and finance given by the Financial Analysts Federation. And a PFS is a personal financial specialist, a title given to CPAs who have several years of financial planning for individuals under their belts.
You’ll also want to check out the history of any planner before interviewing him or her. Follow the same steps mentioned earlier about researching the employment records of a stockbroker. In addition, write to the Securities and Exchange Commission (Public Reference Department, 450 Fifth St. N.W. Washington, D.C. 20549) and ask for its report on your planner.
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10 Responses to “Choosing a Financial Planner”
Well said? Great information, keep up the great work!
By
Mike Harmon (Who am I?) on Sep 20, 2008
A Financial Planner is a professional job. If you are going to use a planner, use one with a good reputations and good references.
By
Double (Who am I?) on Sep 21, 2008
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James (Who am I?) on Sep 21, 2008
Great advice on finding a financial planner. Find one with credentials and experience. Also, Try to find a planner who is at about your same life stage so that they have a good understanding of where you are and where you want to be. For instance, I have two young children and my whole practice is geared towards new and expectant parents. I am highly tuned into the challenges that come with a growing family and can closely relate to my clients. On the other hand, I wouldn’t take on a client who is nearing retirement, since I don’t have as much insight to their goals and worries.
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San Francisco Certified Financial Planner (Who am I?) on Nov 5, 2008
Great advice on how to find a financial planner. Find one with credentials and experience. Also, Try to find a planner who is at about your same life stage so that they have a good understanding of where you are and where you want to be. For instance, I have two young children and my whole practice is geared towards new and expectant parents. I am highly tuned into the challenges that come with a growing family and can closely relate to my clients. On the other hand, I wouldn’t take on a client who is nearing retirement, since I don’t have as much insight to their goals and worries.
By
San Francisco Certified Financial Planner (Who am I?) on Nov 5, 2008
Personality fit is often an over-looked factor. You want to make sure that you share the same basic philosophies with your planner. For example, if your planner is going to insist that you cut out your lattes each day, but you find them to be a $3 slice of heaven, you may not agree on larger issues either.
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San Francisco Financial Planner (Who am I?) on Dec 8, 2008