Finding a Financial Planner (part 2)

Last week’s blog was about the background work you need to do when you are looking for a financial planner. This week’s blog is about interviewing a potential financial planner. As a reminder, be sure to interview at least 3 people before determining which financial planner is right for you.

The first thing you want to discover relates to their practice in general terms, such as their investment and client philosophy and previous work experience. Most financial planners have a typical type of client and financial situation they like to work with, so it is important for you to understand how their preferences relate to you. You want to be sure the services they offer to match your needs.

After you learn the basics, find out more about their qualifications. Anyone can call themselves a financial planner, so be sure and ask if they are recognized as a certified financial planner. A CFP designation means they have passed a rigorous test administered by the Certified Financial Planner Board of Standards. The CFP designation also means they must commit to continuing education on financial matters and ethics to maintain their designation. The CFP credential is a good sign that a prospective planner will give sound financial advice.

Ask for the code of ethics they follow. Certified Financial Planners are held to the CFP Board’s Code of Ethics, which requires them to act as a “fiduciary.” In short, this means the planner has pledged to act in a client’s best interests at all times. This point is critical and should be a deal breaker if a prospective planner is not a fiduciary.

If an investment professional is not a fiduciary anything they sell you merely has to be suitable for you, not necessarily ideal or in your best interest. The difference between ‘best interest’ and ‘suitable’ is an important fine line for you to consider.

Request a copy of the ADV form which is used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities. These forms are available to the public on the SEC’s Investment Adviser Public Disclosure (IAPD) website at

There are two parts to the form. Part 1 requires information about the business, such as ownership, clients, employees, business practices, affiliations, and any disciplinary events of the adviser or its employees.

Part 2 contains information such as the types of advisory services offered, the adviser’s fee schedule, disciplinary information, conflicts of interest, and the educational and business background of management and key advisory personnel.

After you have checked out their credentials, the next important fact to understand is how they get paid. Financial advisors deserve to get paid for managing your money and since you are paying the bill, you need to understand how it works.

There are several pay structures they may use. They may be paid based on commission for certain products. In this case, they could have an incentive for steering you to certain financial products in order to maximize their commission, which may not be in your best interest. They may not be the most unbiased source of advice if they profit from steering you into particular products.

The second method of payment is a flat rate. You might pay them a flat fee, such as $1,500, for a financial plan or their fees may be calculated on an hourly basis. If you’re young and don’t have a lot of assets, a planner who charges by the hour could be most appropriate as they are usually the best fit when your needs are fairly simple.

The third way financial planners make money is being paid a percentage of your portfolio. This fee may be calculated quarterly or annually. It is often 1-1.5% of all the assets—investment, retirement, college-savings and other accounts—they’re minding for you. This method means the more your money earns for you, the more it earns for them so they have an incentive to keep your portfolio growing.
When talking about fees, you also need to find out how you pay for their services. Are the fees deducted from your account? Are you expected to pay by check? How often?

As you learn more about their practice and qualifications, ask about the types of investments they would recommend to someone in your circumstances. This is a good way to match the list you made earlier (see part 1 of this blog) to what they actually recommend.
If they start bragging about beating market averages, run away – no one can do that on a regular basis. And anyone who’s trying to beat the market may be taking risks that you don’t want to take. Always be wary when you’re being pitched an investment by someone who stands to earn money from that investment. Where is that profit coming from? That’s why it is important to understand how financial professionals are compensated.

Ask how much contact they normally have with their clients. Some planners hold an initial planning meeting and then only meet with clients once a year. Others might have quarterly meetings.

Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses. Nor can they give investment advice unless registered with state or federal authorities, so be sure to clarify who your main contact will be. It doesn’t give you much confidence if you interview one person and decide you’d like to work with them only to have another person handle your accounts.

You may want to ask for a sample financial plan. Financial plans will vary based on the planner and the company. You may get overwhelmed with 40 pages of facts and figures or you may think that amount of detail is not enough. Be sure that what they provide will meet your needs.
As the meeting ends there’s one last question you want to ask yourself: Did they seem interested in you or did they do 90% of the talking? If they asked about you, your life and your goals that’s a good sign. If they bragged about their qualifications and expertise, and how much money they can make for you, they may be more interested in getting your business than in helping you reach your goals.

When in doubt, do more homework and make sure that the person you choose to work with is right for you from a lot of different perspectives and angles. Don’t let someone con you into working with them just because they promised to make you rich. Nobody can make that promise and keep it.

While choosing the right financial planner is important, ultimate peace of mind comes from the confidence that all money is God’s money, and that God alone is our true provider and protector.

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