A financial planner can save you time and headaches in addition to helping you tackle financial goals, such as retirement, saving for college, or estate planning.
Before talking to a financial planner, get a handle on your personal finances. How much do you make each month? How much do you spend each month? How much debt do you have? How much do you have saved in what type of accounts (401K, 403B, IRA, Roth, stocks, mutual funds, stocks, annuities, passbook savings, etc.)? What are your financial goals for the next year? 5 years? 10 years?
Once you have a high-level picture of your current financial situation and your goals, seek counsel from godly people to find the right planner for you. Sirach 32:19 tells us, “Do nothing without counsel, and then you need have no regrets.” Friends, relatives, and neighbors may all have recommendations about financial planners they trust. They may also have some suggestions about planners to avoid!
Once you have a list of names, start investigating. You can find a financial planner by entering their name and “CFP” in a google search. Look at their website. Does it appeal to you? Be cautious if they or their business does not have a website.
Check the Financial Industry Regulatory Authority (FINRA.org) website to investigate further. Enter the broker’s full name, the Company’s full name, and the zip code to get a report on whether the financial planner has any criminal charges and convictions, formal investigations or disciplinary actions initiated by the regulators. The report will also disclose situations such as bankruptcy, unpaid judgments, liens, customer disputes, and arbitrations.
After gathering information, set up an interview—we recommend interviewing at least three planners before deciding who you want to work with.
Start with questions about their practice in general terms, such as their investment and client philosophy. Your intention is to be sure the services they offer match your needs. Your basic questions should include:
- How many clients do you work with?
- Are you currently engaged in any other business, either as a sole proprietor, partner, officer, employee, trustee, agent or otherwise?
- Will you, an associate or a team be working with me?
- Do you provide a comprehensive written analysis of my financial situation along with recommendations?
- Do you offer advice in:
- Goal Setting
- Cash Management/Budgeting
- Tax Planning
- Investment Review and Planning
- Estate Planning
- Insurance Needs
- Education Funding
- Retirement Planning
Anyone can call themselves a financial planner, so ask if they have a CFPÆ designation, which means they have passed a rigorous test administered by the Certified Financial Planner Board of Standards. It also means they must commit to continuing education to maintain their designation. The CFPÆ credential is a good sign that a prospective planner will give sound financial advice.
After you learn the basics, ask these questions to find out more about their qualifications:
- What is your educational background?
- What are your financial planning credentials/designations?
- How long have you been offering financial planning services?
- Do you have clients who might be willing to speak with me about your services?
- Will you provide me with references from other professionals?
- Have you ever been cited by a professional or regulatory governing body for disciplinary reasons? (Also available on the (FINRA.org) website.)
- What more can you tell me about your experience in providing financial planning services?
Ask for the code of ethics they follow. Certified Financial Planners are held to the CFPÆ 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.
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.
The next important set of questions relates to their compensation. Financial advisors deserve to get paid for managing your money and since you are paying the bill, you need to understand how it works.
- How is your firm compensated and how is your compensation calculated?
- Do you have an agreement describing your compensation and services that will be provided in advance of the engagement?
- Do you have a minimum fee?
- Do you receive referral fees from attorneys, accountants, insurance professionals, mortgage brokers, etc.?
- Are there financial incentives for you to recommend certain financial products?
- How do you pay for their services? How often? Are the fees deducted from your account? Are you expected to pay by check?
If a financial planner is paid on commission they could have an incentive for steering you in a direction, which may not be in your best interest.
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.
They may be paid a percentage of your portfolio. It is often 1-1.5% of all the assets in your portfolio—investment, retirement, college-savings, etc. The more your money earns for you, the more it earns for them so they have an incentive to keep your portfolio growing.
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 may have quarterly meetings.
- Do they offer continuous, on-going advice regarding your financial affairs, including advice on non-investment related financial issues?
- Do they offer an online platform or some level of technology integration so you can view your account, net worth, budget, etc.?
Financial plans will vary based on the planner and the company. Be sure that what they provide will meet your needs. You may get overwhelmed with 40 pages of facts and figures or you may want more details.
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.
Don’t let someone con you into working with them because they promised to make you rich. Nobody can make that promise and keep it.
Choosing the right financial planner is important, but ultimate peace of mind comes from the confidence that God alone is our true provider and protector.
Thanks to John Kennedy, CFP, Co-Founder of CandorPath Financial for his expertise in this podcast and blog.