How to hire a financial planner
How to find a financial planner:
References from friends and colleagues are a valuable way to start your search. But make sure you have similar financial needs as the person who gives you a recommendation.
Another good option is to turn to groups who certify planners with special credentials or certifications. While no credential or license can provide a 100% guarantee against fraud or incompetence, they do provide good assurance that you’ll work with an expert who’s trained and reputable. You can try the Financial Planning Association. which lets you search for planners by location or specialty.
The Financial Planning Association does not verify credentials; it just lists planners. You’ll next have to verify a planner’s CFP status and background with the CFP Board of Standards.
Generally, you face three basic billing structures:
Fee-Only Planners are paid only for the advice they give. They do not earn commissions by selling financial products such as life insurance or mutual funds.
There are a couple of key advantages to going the fee-only route. First, you don’t have to worry that your planner is making a recommendation to generate fees. Second, you get a better idea of how much you’ll be paying for advice. But there aren’t differences in how fee-only planners bill clients.
Some fee-only planners charge a percentage of a client’s assets, and some charge an annual retainer, a flat fee or hourly rate.
Fee-Based Planners earn fees from advice and they make commissions on some of the products they sell.
Commission-Based Planners make money from the products they sell.
Many advisers give initial meetings without charging a fee. Now, to make sure that’s not wasted, here’s what to ask:
1. What do you charge and what method do you use to get paid?
Planners use different methods to bill clients. You can choose between fee-only, fee-based, and commissioned planners. Either way, you should know exactly what you’re getting yourself into. Fee-only planners, for example, may charge flat rates or an annual retainer. Sometimes they bill by the hour or charge a percentage — usually 1% to 2% — of a client’s assets.
2. What are your credentials?
Many special designations are awarded to men and women who have trained for and passed exams on major points of financial planning. Find out what a planner had to do to earn credentials and who awarded them.
3. How much experience do you have?
The key here is relevant experience. A planner may have decades worth of experience catering to the rich. But if you have simpler needs, like planning for retirement and saving for a first home, you want someone who has plenty of experience in those areas. A good way to find out if someone has relevant experience is by asking a planner to describe his or her typical client.
4. What planning services do you provide and how often do you see your clients?
There’s a big difference between tax planning and tax preparation. Ditto for insurance planning and retirement planning. Needless to say, you should know what services you’ll get from any one planner — then make sure they mesh with the kind of help you want.
5. Does your planning include specific recommendations for investments or other products?
It doesn’t matter if your planner makes money by commissions or is fee-only. Find out ahead of time if you’ll get specific hand-holding or more general directions. Depending on how self-directed you are, you may want someone who’s going to tell you exactly what kind of insurance to get, how much to purchase, and where to buy it. On the other hand, you may feel more confident with say, your ability to pick mutual funds, and not want any input in that department.
6. What are you selling and who’s paying your commissions?
It’s not just enough to know whether or not a planner earns commissions. You should know specifically how much he makes from various products he sells and/or recommends. For example, is this person going to get more from selling annuities than bonds? If you have a clear understanding of how a planner earns his living, you can determine if you’re getting advice that’s in your best interest.
7. Can I get references from other clients?
If possible, get two or more references, ideally from longtime clients. When following up with references, focus on specifics: How helpful was the planner when someone had to handle a financial crisis, such as a death in the family or a big investment loss? Is it easy to get appointments?
8. Do you have any questions for me?
It’s fairly obvious that there’s a correlation between how well an adviser understands your needs and the quality of the advice you get. That said, it’s important that your planner asks the kinds of questions to help you meet your goals, even the ones you haven’t thought to identify.
CNNMoney (New York) First published May 29, 2015: 12:12 PM ET