Most people need help managing their personal finances but not everyone chooses to work with a certified financial planner. Why? Often it is a lack of understanding the purpose and value of hiring a financial planner and what kind of planner is best for their requirements. Choosing a financial planner is similar in many ways to choosing any professional, whether it be a plumber, a landscaper, or a lawyer. First, you identify your problem or needs. Then you do some research to help you solve the problem, identifying people who can assist you. Often it helps to get recommendations from friends or family. Then you interview the prospective professionals and decide how to proceed. Asking the right questions and knowing what to look for is key in the decision-making process. Here are some points to keep in mind when deciding on the best financial planner for you.

Aptitude and Attitude

Does the financial planner have the aptitude and excellence to work with you?  Anyone can market himself or herself as a financial planner. However, professional designations, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), or Certified Public Accountant (CPA) are the gold standard in the financial planning industry, signifying the degree of training and knowledge the planner brings to the table.

The Financial Plan

Does the financial planner draft a financial plan for you? A financial plan should take into account your entire financial picture, including your age and responsibilities. Following is a list of topics that should be part of your financial plan.

  • Your Goals
  • YourAction Plan
  • Your Balance Sheet
  • Your Savings and Spending Plan
  • Your Tax Plan
  • Your Wealth Transfer Plan
  • Your Charitable Plan

Investment Advisory

Does the financial planner manage money?

Does the financial planner have an Investment Philosophy that aligns with yours? Is it too aggressive or too timid?

Does the financial planner review Risk and Reward Potential? What is your comfort level?

Why is this person a financial planner? Ask them!

Part of a financial planner’s job is to help guide you through your career and retirement.  A financial planner should be able to share with you why they became a financial planner in the first place and what motivates them to continue.

Incentives Matter

What financial planners do not do can be just as important as what they do. As with any professional, there are costs in working with a financial planner. But how a financial planner is compensated may influence how they advise you. There are three basic types of compensation models in financial planning.

Fee-only planners: are paid only by the client. These planners do not receive commissions, or kickbacks, from products. The fee-only model is transparent and therefore limits conflicts of interest.

Fee-based planners: may be paid by the client as well as by product commissions.

Commission-only planners: are paid only by product commissions.

Note that financial planners who are paid with product commissions may be incentivized to recommend certain products in order to receive higher commissions.

Since most people want a financial planner who is legally obligated to act in their (the client’s) best interests, it is important to get the planner to put in writing that they act as a fiduciary. That is, they are acting in your best interest, not their own. Interested in learning more? Please give us a call.