If you've decided to work with a financial planner, selecting the right person (or team) for you will take some effort. Remember, financial experts come in many forms. Source recommendations from family and friends. If they’ve had a great, long-term advisor you should add that expert to your list. Other professionals in your network, like attorneys, insurance agents, and physicians can also be a good source for recommendations. But don’t forget to explore the CFP® Board’s directory of Certified Financial Planners (CFPs). These individuals have achieved a specific certification that includes hands-on client work, educational requirements, and standards of ethics.
Once you have developed a list of 3 - 6 planners you’re interested in, I suggest you consider three elements to narrow down your possibilities.
Credentials - what expertise do they have? I clearly prefer Certified Financial Planners, but your potential planner may also have other certifications or designations. Some to keep an eye out for include CPA (Certified Public Accountant, or an expert in the tax code) and CFA (Chartered Financial Analyst, or the equivalent of a master’s degree in finance.) Explore where they have studied, what continuing education they pursue, and whether they teach seminars or classes - this will help you understand their expertise.
Increasingly, you’ll find planners that have social media accounts. I follow several CFPs that provide fabulous advice and insight, and the CFP Board also shares advice from those that have achieved certification. By scanning social media profiles, you can get a sense of a planner's personality, interests, and whether they might be a good fit for you.
Incentives - how do they make money? If you’re hiring a professional, they need compensation for their services. Generally, there are three models of payment: Fee-only means they charge for their advice, often hourly or in set packages; Assets under management means they charge a percentage of the fees that they invest and manage on your behalf (this is typical of investment/wealth managers, and not something I recommend for most); Commissions means they get paid by banks and financial services firms for selling certain financial products (like annuities) to you.
Your financial planner’s incentives should be in line with your incentives, which is why I never, ever work with commission-based advisors. My strong preference is for a fee-only advisor with an hourly rate. If they provide great advice, you’ll recommend them to others and use them again - which will make them more money. Thus, your incentives are aligned.
Fiduciary - is your financial planner a fiduciary? You may be thinking, “What the heck is a fiduciary?” In short, it means that advisors must both disclose conflicts of interest and consistently put their client’s interests first. This is not legally required, even though many assume it is. The suitability standard is required by law, which only asks advisors to consider whether investments are suitable. In my opinion, suitability is a very subjective standard.
You will not be surprised that I think a fiduciary is non-negotiable. Ask your advisor, and don’t take their word for it. Get it in writing and ask for documentation. If you hire CFP, their certification ensures they are acting as a fiduciary.
In addition to those questions, plan to “interview” at least 3 planners in a more detailed discussion to find the right fit for you. Money magazine provided a set of 10 questions to ask. I particularly love the last two: “Why did you become a financial planner,” and “What five important financial or investment books have you read?”
Some of you have asked me what I do; I largely self-manage my money, with a check-in every now and then with a fee-only advisor. However, several years ago, that fee-only advisor did a huge comprehensive review of my finances which was very helpful and illuminated a few blind spots for me. I’m happy to recommend the group I use - they work all across the United States via video/teleconferences with clients and do a very thorough job. (I do not receive any referral fees for recommending clients to them.)
What else would you recommend to those considering a financial planner? Do you have any other questions I can help with? Good luck finding the right advisor - it takes time, but can be very well worth it.
xoxo, Ms. Financier