Financial planning can be helpful for everyone, regardless of their income or their experience handling their money. Deciding on which planner to hire is a key decision, akin to finding a physician or attorney. Since you don’t want to make this decision more than once, you should make your choice very carefully. Here are the criteria I recommend you use:
- Credentials. Your search should begin with advisors who are Certified Financial Planner™ practitioners. To become a Certified Financial Planner (CFP®) practitioner, the advisor must pass a rigorous national exam, complete 3 years of ‘relevant’ experience, agree to abide by a strict code of ethics and maintain 30 hours of continuing education over rolling two-year periods.
- Experience. There is an old saying, “There is no substitute for experience,” and in the world of personal finance, this is a very true statement. I strongly recommend that you choose a CFP® who has a minimum of 5 years’ experience in the financial planning field. Ten years or more is even better.
- Compensation. When hiring a financial planner, it is important for you to understand how they are being compensated. There is no ‘right or wrong’ method of compensation but you must know how your financial planner is being paid so that you can review his or her recommendations in the proper perspective.
- Fee-only. A fee-only financial planner receives fees directly from the client and never receives commissions from the sale of products. A CFP® describing his or her services as ‘fee-only’ is prohibited from receiving commissions in any client relationship at any time. If you want to work with a fee-only planner be sure to ask the planner if they ‘ever’ receive commissions from the sale of products. If the answer is ‘yes’, you need to keep searching. TIP: Some planners will respond, “Yes, I’m a ‘fee-based’ planner”. This is not the same as fee-only. Typically, fee-based means that they do sell products and receive commissions but will ‘credit’ the commissions received against planning fees.
- Commission only. Here the financial planner does not charge a fee for the planning work, but rather receives commissions from the sale of products recommended as a result of the planning work.
- Commission and fee. Many financial planners charge a fee for developing your financial plan, then receive commissions if you buy recommended products.
There are pros and cons for each style of compensation. Decide if you have a preference and, in any case, be certain you know how your advisor is being paid.
- Custodian. Be sure to understand who, or what institution, will have custody of your money? Be leery of advisors who custody assets or money themselves, as opposed to using a third party such as Charles Schwab, etc. (**Think Bernie Madoff**). This will give you peace of mind in knowing your money is safe and secure.
- Chemistry. Ideally, when you choose a professional advisor, you will be selecting someone with whom you will work with for the rest of your life. However, it is not unusual to find a competent advisor that for some reason you do not “click” with. Call it a difference of personality. Most professional advisors will meet with you initially without charge. This first meeting is used to determine the scope of the work to be performed. You should also use this first meeting as an opportunity to determine if the advisor is someone you feel you would be happy working with long term.
To find a Certified Financial Planner™ practitioner near you, visit www.CFP.net. You can enter your zip code and refine your search using a number of alternatives including fee-only versus commission or commission and fee.