7. Ask for a customer referral.
8. If they promise a return of more then 12% or so, run
9. If the first thing they say isn't "Max out your 401K and pay off your credit cards", run
10. If they tell you to refinance in your first meeting, run

11: Just ask random people on the internet. They know everything.

@B: Wait, you mean Yahoo Answers and AskMeFi might lead me astray? The devil you say!

I'm biased, but I don't think that being your own FA is always the best idea. Having someone else can remove the emotional attachment you might have to certain decisions, so you don't hold something longer than you should.

@madamdalriada: Well, I'd tell you, but what reason would you have for trusting me? After all, I'm just some random person on the internet.

@Norcross: I agree, but on the other hand you know more about your personal finances and values than any financial planner can.

@B: oh yeah. that's why it should be a partnership

My philosophy is not to put all my eggs in one basket. I have a financial planner, but only for some of my assets. I fill them in on my other investments, but manage those myself.

That way I get a sanity check on everything, and professional help on a subset.

@Norcross: I agree. Also in a partnership situation (marriage, etc.), just having a third party present can help people have that discussion without it devolving into unrelated shouting and/or sobbing.

Financial planners scare me a little. I've heard one too many reports of them running off with someone's money. There have been a lot of people running off with other people's money for years, but now that I actually have some... I don't want anyone to take it. LOL!

There was just a Girl Scout Troop leader (in Delaware) that stole the cookie money... man. That's small change! Can you imagine if you gave the care of your financial decisions to someone that was feeling froggy?! Scary stuff, man. I can see where there might be a need for them, sure. But it's still scary to me.

12. Find someone with gold teeth.

If they have gold teeth they must know what they are doing financially.

I think the author is generally correct in asserting that the vast majority of investors don't need a financial planner. Your $500,000 or less 401k is probably equally as good in your hands as a planner who will charge fees. Once you accumulate enough wealth, a planner can help hook you up with portfolio managers who will be able to give you access to institutional mutual fund shares (with lower fees) and more traditional assets (true bonds instead of bond funds, for example). I work with a couple of them in my office and I think they are supremely useful for a few types of people.

1. Those who have inherited a large sum of investable assets (over $750,000). These people often need help dealing with lawyers and sorting out how to maintain this nest egg that has appeared suddenly.

2. Those who have recently sold a business for $1 million+ (that is not investment related). Often these folks think because they have managed their businesses, that they can effectively manage a fixed amount of assets. More often than not, they have been able to suck it up when things run thin and spend a little more when times are good; A planner will help you take more of an 'even keeled' approach.

3. Retirees with a significant amount of assets ($2 million+). You're retired, you don't need to stress yourself out with the daily volatility in the markets, let someone else handle it and make sure the planner is meeting your investment goals relative to the benchmarks you've established. (net of fees, of course).

With a large enough pool of assets, there is truly a great deal of value that a planner can give you. Like I said though, planners are probably worth passing on for most people.

@Secret Agent Man: The idea that the rich are the only one who need planners is a laugh. How do you think they got that way?

Im not saying to hire a $200/hr guy, but an Ameriprise or similar agency planner are very affordable and worthwhile, if only for the budget advice.

Many/most companies have a deal in place with an agency to provide a discount for their employees to meet with planners.

@Norcross: I'm going to take a contrarian view, although I also admit I'm a bit biased as well. I don't think you need a financial planner if you're halfway intelligent and able to disconnect yourself emotionally from your money decisions. Some people can, other people can't. But I will admit that you have to be willing to learn on your own and educate yourself if you go for a DIY approach. That being said, educating yourself about your money is something you should be doing anyway, regardless of whether or not you use a FP.

Here is the thrust of my argument against financial planners. I don't pretend that my advice applies to everyone, as I recognize that some people just aren't willing or capable of figuring out how to do things on their own.

1) Unlike in the past, there is a wide variety of good information about money and investing available for free on the Internet.
2) There are a lot of easily accessible and user-friendly ways to manage your own money on the Internet using sophisticated tools that were not available to the general public in the past.
3) Objectively, I do not believe that your average financial planner does a better job of managing money than I do with my own. Maybe they do better than some people, but I think the gap is likely less for educated DIY'ers.
4) A financial planner not only has to do better than me, but they have to do quite a LOT better than me to be worth it because of the high fees they charge for their service.
5) The "service" many financial planners provide is pretty basic and amounts to things people should already know or could easily research, like asset allocation and portfolio rebalancing.
6) And all this is even assuming your financial planner is not crooked or otherwise biased towards financial products that make them more money (many are).

@TracyHamandEggs!:
I didn't say the rich are the only one's that need planners, but thanks for the knee-jerk reaction.

The post said that most people can do it on their own, and i tend to agree that you can do a fine job on your own. What I did say was that there are a few types of people who should not go it alone, because they will likely be worse off.

I think a planner is probably great for anyone trying to get their finances in order and seek the help of an expert, but not everyone needs one.

If your risk adverse - call Vanguard.

My graduate investment analysis instructor is a mutual fund manager for American Century. Those guys work their ass off trying to beat the S&P by a few points. They're worth their 100 basis points.

Beware of any large cap funds. They can essentially be index funds but with a manger charging you a few points.

Trust quantitave portfolio selection techniques.

Shoutout to Tough Money Love, who covered this topic a few days ago:

[toughmoneylove.com]

@TracyHamandEggs!: I think he's correct. See my post above. Why would I pay someone for "budget advice" when I can easily find good information and tools about that online for free? Like Secret Agent Man said, there are probably some people who can benefit from professional advice. Most "small fish" probably don't need it much because the benefit is marginal and overpriced.

@TracyHamandEggs!:

If the first thing they say isn't "Max out your 401K and pay off your credit cards", run

If this is the best advice they can give you, run. I'm pretty sure you (the readers) didn't just pay TracyHamandEggs! anything for that advice.

@sir_pantsalot: Can I introduce you to my financial advisor, Flavor flav? Also, with all the clocks, he always knows when the Markets close.

A Financial Planner is more than just a money manager. The author may have meant a Financial Advisor.

In any case, a financial planner is there to help you out with not just money management, but retirement planning, insurance planning, education funding, and estate planning. Most planners are going towards a fee-based model (as opposed to the comission based model). Expect to pay 0.50 to 1.6% annually on assets under management, depending on your needs.

That said, most people from age 20 - 40 will generally not need too much service, other than basic goal setting, investment needs for 401k/403bs/IRAs, and insurance needs. Those getting closer to retirement with sizable assets should consult a planner before making the jump.

And, the average investor has historically underperformed the market indexes. Why? Because most people don't have the time, knowledge or rational to manage their money. Most people "buy high" and "sell low". It's human nature.

My personal experience and that of several friends informs this bit of advice: avoid Ameriprise (formerly American Express Financial Planning) at all costs! Several of us enlisted with Ameriprise around the same time a few years ago, and each of us has subsequently fired our adviser and moved our money due to the general incompetence, terrible value, and shady nature of their business. I recall reading a WSJ write-up of the old AEFP back before the spin-off of Ameriprise that was a pretty accurate expose of the business which gave numerous reasons to avoid them, each of which we experienced. Short story: advisers were poorly trained, offering little guidance that I couldn't get from a for-dummies finance book; sales practices and asset allocation were heavily skewed toward Amex's profit, not our financial success; annual fees were hugely disproportionate to the services provided. Perhaps they've cleaned up their act in the last two years or so, but I would certainly avoid them.

In addition, look for planners with the Certified Financial Planner certification. It's the mark of a long (usually 2 year program)and rigorous education that covers every aspect of investing, retirement planning, insurance planning, tax planning, estate planning, and more.

If you really think you can DIY in all these cases, that's great. Most people don't have the time.

Financial panther, eh? Get him, Sheba!

@gvf: Read this. It's a Harvard Business School study that finds that financial advisors also often engage in many of these non-optimal investment strategies like performance chasing, and don't produce significantly better returns (much less returns that offset their fees). So why pay for their services if they don't do much better than you could on your own?

(I should make clear that the study isn't talking about financial planning in general, but investment products sold through different distribution channels).

Ask what kickbacks they get based upon the financial plan they recommended.

@laserjobs: Yep, and ask them if they can get you better returns than, say, a Vanguard or Fidelity index fund or ETF, while taking an equivalent amount of risk, for less than the total expenses and fees you would pay to Vanguard or Fidelity. Vanguard and Fidelity are VERY cheap, even factoring in the expense ratios, so you'll probably pay them FAR less than you pay a financial advisor. So when you factor in all the expenses, the advisor is starting from a negative starting point and has to do damn well to be worth it.

(Again, same as above: I'm talking about investment advice here and not other considerations like insurance, estate planning, etc. But then again you can probably do better on your own there, too.)

As a person who is studying for the CFP examination this year, I want to say that gvf knows what he's talking about. While many people use the terms financial advisor and financial planner interchangeably there are important distinctions which he accurately points out (they also work on tax planning, too).

My advice to all of you looking for financial planners is to strongly consider a certified financial planner. You can find one at http://www.cfp.net/ (you can also read up on the profession, as well).

Disclosure: I am a Certified Financial Planner (CFP). I believe the discussion above confuses the role of a Planner vs. a FA. A planner's role should be seen as a financial life coach, encompassing money management, retirement and insurance planning, estate and tax planning or be able to refer you to a specialist for your circumstances.

If your planner's discussion is focused on investment returns and the next best thing look elsewhere.

I will give you some questions to ask you planner;

1) How many clients do you manage, what is the average net worth and where would I fit in?

2) How long have you been in the business? What kind of qualifications do you have? What kind of qualifications do you have? What do you do to stay current?

3) What's your investment philosophy and process? How is it different from other planners?

4) How often would we meet? How long does it take to return calls from your clients?

5) Do you monitor the satisfaction of your clients? Could I speak to a couple of your clients about their experience working with you?

6) Tell me about the last couple of clients who left you and took their account elsewhere?

7) How are you paid? What kind of money would you make on my account? What would I get for that?

I actually present these questions at my first meeting to engage the client in the conversation and allows them to feel confident in freely asking me other questions that are important to them.

@johnva: you make excellent points & mostly i agree with you. but, i do think financial planners do play a role in our complex society & there are times when a good financial planner can do much, much better than a person/family on their own.

you're right - we have so much more information at our disposal these days & virtually anyone can accomplish a variety of research & portfolio management on their own. but as they say, a little knowledge can be a dangerous thing. people can easily make the wrong decision based on incomplete or incorrect information - this is where having an expert in financial planning can help.

i can't tell you how many times i've encountered people who have made the wrong choice in investment decisions based on their confidence that they know better than everyone else. & it's not because they were stupid or unable to manage their own day-to-day finances - it's because they were faced with a situation that they were unfamiliar with & did not consult experts to help them strategize properly. to give some examples - earlier this year i cringed when an individual had to shell out ~$40,000 in tax penalties upon cashing in a retirement account & another who will have to pay the tax burden on ~$20,000 in savings bonds next year, even though she would have qualified for the education exclusion for most or all of that amount. i knew a man whose family would have benefited greatly if he had considered a living trust (his property is still in probate 2 years later). then there's a few stories of young adults who blew through substantial inheritances/settlements/etc. in no time - i bet they wish they had consulted someone about how to make that money last longer.

my point is that yes, you can do it yourself & should definitely educate yourself as much as possible to make the best decisions you can. but if you find yourself in a situation where you are unsure or feel overwhelmed or face important life decisions, seeking out expert help can be quite helpful & pay for itself many times over.

@mac-phisto: & no, i'm not a financial planner, but there are times when i consider entering that field - there are many people in need of some serious consultation out there.

@mac-phisto: I agree that there are some people who probably need hand-holding. Although, I have to question the intelligence of someone who does something like caches in a huge retirement account without doing detailed research first. Whether you do that by consulting with a professional, or by reading up on your own, you've got to do it. Maybe I'm atypical, but I make damn sure I know what the hell I'm doing when I move around large amounts of money.

@johnva: My financial planner is free ... with my credit union membership. :D

I basically know what I'm doing and what I want to do, but I like having a second pair of eyes looking at it, and I like having a neutral party for when my husband and I have differing opinions who can lay out the pros and cons for us. They're generally the same pros and cons we already have, but they're all wrapped up in emotions and stuff when it's just between us. :D

And the planner is ONLY a planner -- I do all the management stuff myself. The planner just sits down and helps us make sure our goals are on track and literally just helps us PLAN. Execution is up to us.

@johnva: oh yeah, if an FA is trying to sell proprietary products, tell them to pound sand. there is a lot of good information out there, but it's hard to know what is good and what is hype.

that being said, i work as an investment officer for a trust company, so my experience is used in a specific context

@johnva: that particular individual got blindsided by an event that required access to a large sum of money quick. a planner might have helped make sure he had adequate liquidity to avoid taking a hit that big, or at least may have been able to offer a strategy that would have limited his tax penalty.

i mean, you have to give the guy some credit - he had the foresight to save a massive sum in the first place. but my point was that when faced with the unexpected, he made an irrational choice that may have been avoided if he had access to expert advice.

@Eyebrows McGee: this is a program i'm trying to start at my credit union. i really think this is an invaluable service that can benefit everyone from the person in debt up to their eyeballs to the budding family thinking about their newborn's college fund to the couple in their 60's wondering if they have enough for retirement.

i plan on really pushing for this at our next strategic planning session.

I would add listen to NPR's Sound Money every week, because if you can't manage your own money you shouldn't be paying someone else to.

@velvetjones: Ooh, cool! URL?