How To Pick A Financial Planner

Let’s say you’re the kind that can make money but don’t know what to do with it once it’s yours. Or perhaps you know a bit about personal finance but need some help on the more complicated matters associated with managing your money. Or maybe you don’t want a thing to do with handling your finances — you simply want to turn them over to someone else. In all of these cases (and several others you can likely imagine), you may be in the market for a financial adviser. But the world of financial planners is full of sharks, say CNNMoney and USAToday:

In most states, anyone can call themselves a financial adviser, even if they don’t have any training.

So how do you pick a financial planner who knows what she’s doing and who won’t rip you off by only working to turn your money into her money? A couple thoughts…


For starters, it’s always a good idea to ask friends and family for suggestions! Following that:

Several groups certify financial advisers. A good starting place is the Certified Financial Planner Board of Standards. This organization administers the Certified Financial Planner designation, which can only be obtained after extensive study and a broad, comprehensive exam. Sticking with a CFP registered adviser doesn’t guarantee the person is honest, but it gives you an assurance the person has at least mastered the knowledge needed to give you good advice.

Then, once you pick a few financial planner candidates, you need to interview them. What should you ask/look for? Consider:

The first step is making sure the planner’s expertise meets your needs.

[Then] there’s another issue of compatibility. Is the adviser someone you can confide in, someone you’ll feel comfortable going to with questions, problems and concerns?

You’ll also want to consider how the adviser is compensated. Some planners receive commissions for the investments they sell you. Others, such as NAPFA members, charge fees only, usually an annual retainer, a percentage of assets or both. Whatever fee arrangement you ultimately go with, make sure you get in writing how much you’re paying and that you know exactly what services you’re getting for the money you’re shelling out.

You’ll also want to check to be sure your planner hasn’t had any run-ins with regulators such as the Securities and Exchange Commission, the National Association of North American Securities Administrators and the National Association of Securities Dealers.

Here’s the bottom-line:

The more research you do and questions you ask before signing on with someone, the fewer problems you’re likely to experience down the road.

Sounds to us like good advice for any sort of major purchase — but maybe even more so where your financial future is concerned. Let’s not forget, though, Financial Advisors Often Give Poor, Expensive Investing Advice.FREE MONEY FINANCE

(Photo: Getty)

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  1. Barton says:

    Asking friends and family is a good check point, but I believe checking the advisor’s compensation method (fee-only is essential for me) and their certifications (CFP, etc) are essential. No need to be taken down the same wrong path that your friends and family were! That wrong path can involve inappropriate investments with expensive fees, commissions, and surrender charges.

  2. healthdog says:

    Financial Panther, huh? Get him, Simba!

  3. Lauram says:

    I couldn’t get a recommendation out of friends and family, even when I cast my net pretty wide. (They’re a bunch of itinerate arty types.) My tax accountant recommended my planner, and I’m pleased. I’ve worked with this accountant for a few years, trust him, and, when I thought about it, realized that he has even more interest in making sure I find a good planner than friends, because 1) he’s supposed to know what he’s talking about and 2) I’m not going to break off a relationship with a friend or relative over a bad planner rec, but it’s possible I’d end a business relationship over it.

  4. Notsewfast says:

    Another important factor to consider (after competency) is how many clients they personally attend to. A golden number is around 250 (approx 1 for each business day). This ensures that they are trusted by many, but selective, and able to give each client enough attention.

  5. wakamole says:

    Since a finance advisor is supposedly keeping you from having a horrifying end-of-life experience, note that you’ll reserve a few thousand to put a hit on them if they turn out to be crooked or stupid. That should go double for management of LTC companies.
    It’d be interesting to see if there’s any takers.

  6. Cre-dit (clap-clap-clap) Un-ion (clap-clap-clap)

    My credit union has free financial planning for members with a CFP who is salaried by the credit union. The credit union offers no investment products (beyond CDs and MMAs) so her advice is pretty darn unbiased. And did I mention free?

  7. Notsewfast says:

    @Eyebrows McGee:
    While Credit Union Advisors might be unbiased, it is generally a “starting point” for professionals. You’ll find a higher percentage of people that may be cretified, but have no real experience there.

    Its an industry where a good broker can make millions a year, why would the best talent be earnign $35,000 year in a Credit Union?

    It’s not like ebing a public attorney or a teacher, there is no real community service or self affirmation to be gained.

  8. Notsewfast says:

    Well that is full of errors:

    cretified=certified
    earnign=earning
    ebing=being

    /corrections

  9. Xerloq says:

    You should always ask to see the planner’s financial statements for the last 3 to 5 years, (i.e. his tax return and his own investments) to make sure he knows what he’s doing. I don’t care about certifications and memberships or even fees so much as I do about knowing that he understands investing.

    My experience is the great financial planners will happily hand over the information, the good ones will be willing (if hesitant). You should run screaming bloody-murder from those who won’t even consider showing you their statements.

    If he’s screwing himself over by making bad choices, what makes you think he’ll do better for you?

    (PS, to all the consumerists of the female persuasion, you may replace the he’s with she’s above. I meant no offense.)

  10. wonderlic says:

    If it hasn’t been said already you should probably seek the services of a fee based planner. Its higher at the outset, but a good one will give you a forward looking plan that deals with various possibilities. The problem with planners that take a cut on the investments you make is that they usually have incentives to put you into stuff they sell or that comes with higher fees.

  11. @Secret Agent Man: “Its an industry where a good broker can make millions a year, why would the best talent be earnign $35,000 year in a Credit Union?”

    I’m guessing because where I live, CFPs don’t make huge salaries, most brokers are with the chains, and the Credit Union has a kick-ass health care plan. One imagines it’s different in a large city.

    (Aside, her salary is comparable to what the local going rate is.)

  12. UnnamedUser says:

    Credit Unions for a financial planner?
    Surely you jest!

    In my community one of the local credit unions, a former single-employer credit union, has in-house investment broker and ostensible financial planner. In truth, this in-house outfit is a national “retail investment product” peddler: LINSCO/PRIVATE LEDGER. My understanding (ICBW) is that almost all credit unions have similar arrangements with retail investment brokers.

    When I moved to this rural community from megalopolis I left behind a banking relationship of nearly 30 years and got my banking services from this credit union. I made my opening deposits then months later moved my short-term working assets to the CU, closing my accounts with my former bank. My short-term is about a year’s expenses.

    The very next day I got a call from the investment side of the CU asking if they could “help” me with planning for my future. … something about privacy violation came to mind. Never mind, conflict of interest.

    When I was a young person and didn’t know any better, I fell for this very same crap. Sad to say, several times before I finally figured it out. I finally did figure it out at about age 40 and changed my entire philosophy on finances. I had to do it myself. I studied. I talked to successful folks. I talked to unsuccessful folks. I came to the conclusion that retail investment brokers were bad for my financial health. So, I took my money away from the retail brokerage business and moved it all to a discount broker.

    The problem with the retail investment brokerage business is that there is an inherent conflict of interest in the transaction. It is a 3-party transaction. The broker, the “retail financial product” provider, and you. The conflict is apparent: the broker gets paid by the product provider. You end up paying the provider’s fee as a commission on the sale. In many cases, the commission is hidden. You see a transaction value of $10,000 (for sake of round numbers). In truth, the amount invested on your behalf is only $9200. The difference being the commission to the broker.

    The trouble is: the riskier the investment product, the higher the commission to the broker. So, ask yourself: If the broker has to pay for his kid’s braces this month, what will he try to sell you? — The proof here is left as an exercise to the reader.

    There is a saying in the retail brokerage industry: “The company made money. The broker made money. Two out three ain’t bad.” — The message here is: Buy your financial planning services for cash. Buy your investment advice for cash. Do not, under any circumstances engage a broker where he is compensated on commission. You can only loose.

    That’s just my humble opinion based on 62 years of life and experience. … Good judgement comes from experience. Experience comes from bad judgement.

    I retired in 2001 at age 55. My strategy of researching my own investment decisions has proved sound and continues to do so.

  13. redclear55 says:

    There are a lot of good financial advisors out there, so don’t let the few bad apples spoil the bunch. A lot of the good advisors only accept new clients from referrals from current clients. This typically means that the clients are similar giving the advisor a better ability to evaluate your situation. Keep in mind while you evaluate the advisor, they are evaluating you. I have witnessed a few times where advisors have turned down possible clients. It’s about finding that right mix of investment philosophy and expectations.

    Commissions versus fees really depends on how you invest your money. If you want to make the decisions on what to buy and when to buy it, there will be a commission (or sales charge). If you want the Advisor to make the decisions, I would ask if s/he uses a fee based advisory platform. There are some platforms where you can pay a fee and pick your own securities, but your universe to pick from is considerably smaller.

    Finally, ask about affiliations between the securities to be bought/sold and the firm where the advisor resides. This will expose any conflict of interest.

    Disclaimer: I work for a large broker/dealer focused on fee-based advisory business.

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