Choosing a Financial Planner…Part I

Did you know that anyone can call themselves a “financial planner”?  Unlike other professions, such as medicine, law or accounting, where regulatory boards control who may practice, there is no such oversight for financial planners.  So, if there is no regulation, how do you know that you are working with a financial planner that is right for you?

Let’s start with a definition of what is a financial planner.  A financial planner is someone who takes a “big picture” view of where you are today, helps you define the goals you want to reach in the future, and then works with you to develop a roadmap to get there.  A comprehensive financial plan will normally cover budgeting, debt reduction, personal insurance (life, disability, health, long-term care), property and casualty insurance,  taxes, retirement planning, investments, estate planning, real estate (primary residence and investment properties), and college funding (for children and grandchildren).  Sometimes a financial planner will be asked to focus on a single financial issue, however, it should be done in the context of your overall situation.

Before hiring a planner or if you’re working with an advisor now, ask yourself what you are looking to get out of the relationship?  Is it a comprehensive plan or ongoing comprehensive advice covering your entire situation, or are you looking to address one area of your financial life, such as investments, insurance, or estate planning?

The other area to consider when choosing a financial planner is how you will be charged for the planning advice.  There are a few ways that a financial planner or a firm can be paid:

1)      commissions for the sale of products, such as insurance or investments, to implement your financial plan,

2)      fee-based, which traditionally has meant a combination of commissions and fees paid direct by the client, though some individuals and industry definitions are now using this interchangeably with fee-only, and

3)      fee-only, which can mean an annual percentage of assets under management or financial planning based on hourly advice, including projects and retainers.

When working with a planner you should ask about all the various charges that both the individual planner and the firm will receive for the business that you do with them.  Some firms, generally the larger ones, may receive ongoing fees paid direct by you for managing your investment accounts and also receive additional revenue based on the securities purchased in your account.  Not all of the revenue the firm receives is disclosed on your statements, so it’s up to you to ask.

Our next article will focus on the primary certifications held by financial planners and provide a questionnaire to use when selecting an advisor.