Terry Herr, CFP®, CLU
The role of a financial planner is to help you and your family figure out how to best protect, preserve and grow your wealth in order to meet both your short and long-term financial goals. The value of the planner is that he or she provides the client an objective opinion of how to best protect your assets while positioning them in a way that will have the greatest likelihood of financial goal success. A financial planner's work is not limited to just investments. Financial planning involves everything from insurance, income, tax, retirement planning, estate planning and investment planning.
Understanding the Role of a Financial Planner
Many people confuse a financial planner with a stockbroker, and then they find themselves playing the public market in ways that work against their goals. Further, planners are not public accountants; financial planners don't traditionally manage tax filings or track spending.
Because a planner acts as a professional adviser, they are often seen as filling in a gray area between the tax accountant and the brokerage trader. Some financial planners are also bridging the gap between CPAs and traders by offering investment management, tax solutions and full-service financial planning. That said, there are ways to make sure a planner is qualified to do the work needed for proper asset and wealth management. Here are seven questions that you should be asking when hiring a new financial planner.
Question #1: How Long Have You Been Practicing?
Planners qualifications can vary so finding someone that you trust with your savings and the future of your financial path is incredibly important. Everyone needs to get a start somewhere, but finding someone with experience, or unfettered access to another advice with experience is key. It may be helpful to know that for an advisor to be eligible for a CERTIFIED FINANCIAL PLANNER™ (CFP®) designation, they need to have at least three years of experience.1 Additionally many Masters of Business (MBA) program require a intensive 1.5 to 3 years of study. An MBA program provides a broader understanding of the business world than will any profession-specific certification program. The combination of the two can be a powerful punch.
Question #2: What Are Your Credentials?
Choose a financial planner who possesses the appropriate professional qualifications to meet your needs, such as the CFP® credential or an MBA in Financial Planning. To become a CFP®, the planner must pass testing that demonstrates they meet regulated educational requirements and professional standards as well as rigorous continuing professional continuing education requirements.
Other profession specific credentials you may want to look out for include:
- Chartered Financial Analyst (CFA)
- Personal Financial Specialist (PFS)
- Retirement Management Analyst® (FMA®)
- Retirement Income Certified Professional® (RICP®)
- Certified Retirement Counselor® (CRC®)
Question #3: What Is Your Niche?
Some financial planners may choose to work with a niche clientele - pre-retirees, doctors, educators, women, etc. Alternatively, some planners are more accommodating to helping everyone who meets some general criteria - regardless of age or profession. Finding a planner who works with others like you is a great way to make sure they will understand your specific needs and be familiar with options available to you.
Question #4: Do You Have References?
The CFP® board's website is a good place to start your search for a financial planner. If you are looking for a fee-only planner, the National Association of Personal Financial Advisors (NAPFA) provides a good start to find planners who carry high-level standards and ethical qualifications. Most importantly before hiring any financial professional visit the Broker Check by FINRA website and your State's Department of Financial and Professional licensing site to review any complaints that may have been filed against the advisor you are considering working with. Click into read the complaints and be sure to ask the planner about them. They should be able to address your question directly and professionally. If they seem evasive, look for another planner.
Question #5: What Are Your Retirement Planning Projections?
How much money will you be able to spend each year from now through your life expectancy?
This is based on assumptions about:
- The rate of return of your assets
- The pace of inflation
- Your spending habits
You’ll want to work with a planner who is able to help you think in the long term and offer realistic expectations of what retirement may look like. They should be able to help you balance your ability to live comfortably today while preparing for a sound retirement.
Question #6: How Are You Compensated?
Transparency is important. Make sure your planner explains the fees clearly so you have a solid understanding of what you’re expected to pay and the services you will receive. Some advisors are commissioned based which means they have to sell you a financial product to be paid, others are fee-based in which they usually charge fees for their services (but may still receive commissions on certain products such as insurance) and then others are fee-only. Terrific advisors exist in all three of these compensation structures, how they are compensated doesn't dictate their ethics, but it could have an influence on the recommendations they make.
When it comes to planning for your future, a strong financial planner is an important part of this process. Hiring a trustworthy financial planner is something to take seriously. Asking yourself and an potential planner these questions is an important step towards hiring the right person for you and your family.
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This content is developed from sources believed to be providing accurate information. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.