Are you in need of a financial planner? Do you know what to look for when it comes to financial advisors? Are you aware of the differences between all the people who call themselves financial planners? Chances are you are like most people and have not given this much thought. But there are some basic questions you can ask to try to find the best possible financial planner for your situation. But first, know that there are many different names for financial planners, and there is nothing keeping people from calling themselves one with little or no training. Unlike CPA’s and lawyers, there is not a state standard to become a financial planner. But the designations do make a difference.
One of the first things you want to establish is the planner a fiduciary or not. So, what is a fiduciary you ask? Well, most financial planners are not fiduciaries, and they will act in your best interest right up to the suitability test. Meaning they do not have to act in the best interest of their client, or in other words you. A fiduciary is legally bound to act in their client’s best interest and ethically bound as well. This means they must put your interest first and foremost and that is the best policy.
The next thing you want to consider is are they a Certified Financial Planner or CFP. As I allude to earlier, there are many designations of planners, but this is the gold standard. A CFP has passed a rigorous set of exams and had education in taxes, asset allocation, estate planning, college planning, retirement and other aspects of financial planning. Like a fiduciary, a CFP is bound by a code of ethics. In addition to passing a comprehensive exam and the education requirements, a CFP must also first have three years’ experience in financial planning.
Third, you want to see if the planner has any additional education that would aid in their duties. This could be a JD for a lawyer, a CPA for an accountant or a master’s degree in financial planning or a related field of study. You should not entrust your hard-earned funds to just anyone, and you need to ensure that the person you do trust is educated properly and is capable of handling your situation.
Forth you want to know how long the planner you are considering hiring has been in the financial planning field. While everyone must start somewhere, it is important to have someone who is competent and knowledgeable in the working of financial instruments. In this regards, you need to look at the planner’s track record as it relates to the areas that concern your needs.
Fifth and one of the important questions you need to ask is how do you as a planner make your money? Some planners will make their fees by charging a percentage of assets under management or AUM. This tends to be about 1% of AUM for the planner’s expertise and knowledge. Some planners make their money from commissions on financial products that they will sell you, and these planners should be avoided as their fees are dependent on selling you products and not what is necessarily is in your best interest. And finally, there are fee-only planners who I recommend as they can have your best interests at hand and will make money from you on a predetermined basis.
The sixth aspect is, does the planner have any regulatory issues? Always check with regulators of financial planners in your state to see if any regulatory issues have been filed against that individual planner. If there are regulatory issues, then steer clear of them and find someone else.
Seventh always ask for the Form ADV which is a uniform form that is used to register with the Security and Exchange Commission (SEC) and state regulators. See that the form is current and that there are no issues associated with the firm or individual that the ADV is filled on.
And finally, how does the planner hold your funds that are invested. If they hold the funds that is a red flag to you as there is ease in fraud when the planner holds access to the funds. How is this done you ask? One method is falsified statements, think Bernie Madoff here. It is always best to have your funds deposited with a third party that sends you the statements directly so you may see what is going on in your accounts.
There are many questions that you could and possibly should ask a planner, but these are just eight that are first and forefront in my mind. While I do not have a CFP designation it is not due to my lack of knowledge, education or experience, but rather I lack the three years of consecutive full-time experience in financial planning. Something I will solve when I retire from my government job and go out to work in planning full-time in my early retirement.
If you have any questions or need any additional information, please feel free to email me directly or leave a message here on the site.
