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How to Hire a Financial Planner – Understanding Their Value, Their Credentials, and How They Are Compensated

Do you need a financial planner? Before hiring someone to manage your money you should run a background check, verify they are certified, and understand how they are compensated. These tips can help you choose the right financial advisor.
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Sometimes, it helps to have someone knowledgeable look at your finances. In some cases, a financial advisor can help you create a plan for the future and help you stay on track with a plan you might already have. On the other hand, some people may feel overwhelmed by trying to manage their investments and may be better off hiring a professional to help them make the right decisions.

Whether you are a beginning investor, putting together a debt reduction strategy, or figuring out how much you need to set aside for college, hiring a financial planner may be for you.

Table of Contents
  1. What is a Financial Planner?
  2. Types of Financial Advisors
    1. Financial Planners
    2. Stockbroker
    3. Specialist
  3. Why Do I Need a Financial Planner?
  4. Advantages of Using a Financial Advisor
  5. Research Financial Planners Before Hiring
  6. Criteria for Hiring a Financial Planner
    1. Understanding Credentials
    2. How Does the Financial Planner Get Paid?
    3. References Are Important – But Don’t Have Blind Faith
  7. How to Interview a Financial Planner
    1. 1. Are you certified?
    2. 2. How do you get paid?
    3. 3. What is your investment philosophy?
    4. 4. Who is behind the scenes?
    5. 5. How often do I expect to hear from you?
    6. 6. Has anyone filed a complaint against you?
  8. Do You Need a Financial Advisor?
  9. Choosing Your Financial Planner

What is a Financial Planner?

Financial planners are investment professionals who help individuals assess their long-term financial goals and then make recommendations for investment products and services that will accomplish those goals, along with a detailed action plan.

Some financial planners can examine and plan for every aspect of your financial life, including deposit accounts, investments, taxes, retirement and estate planning, and more. Others offer a more narrow focus and range of services.

Types of Financial Advisors

Depending on your needs, there are several different professionals out there who can help you to reach your goals.

Financial Planners

For general money advice — including anything from investments and retirement to life insurance to savings to taxes to estate planning — a Certified Financial Planner (CFP) is your best bet. These financial jacks-of-all-trades are an excellent resource for the average investor, as they can help you get a good look at your entire financial picture.

Financial Planners will generally offer you a free first meeting, during which you can ask questions about how they can help you reach your goals. From there, advice from the planner can either be charged hourly (a good idea if you have just a couple of specific questions), by the project (great for those who need help in only one area), or on retainer (for those who are looking for a long term relationship).

Although anyone can call himself a financial planner, a Certified Financial Planner is a title regulated by the CFP Board. Those professionals must abide by standards of practice and a code of ethics.

Stockbroker

Most individuals think of this sort of money manager when you mention getting investment help. Stockbrokers (also known as investment managers or wealth advisors) work to maintain the best possible returns for your investments.

In most cases, using a stockbroker is for relatively high rollers — those with a portfolio of anywhere from $50,000 to more than $100,000. That’s partially because you will be paying around $100-$200 per stock trade, which is too rich for many casual investors’ blood.

If you are willing to do your research, you can use the services of a discount broker — that is, someone who will do the trading for you at a lower fee than that of a full-service broker. Discount brokers generally charge less than $10 for an individual online trade.

Specialist

Sometimes, you need help in a particular area. Want to figure out how to leave all your money to the whales? Want to know which 529 plan will be best for your kids? Want to figure out how to minimize your small business’s tax bill? In each of these cases, a generalist might be able to help you, but for the absolute best advice, find someone who specializes in the area where you need help.

It could be financially dangerous to simply hire anyone who has put out a shingle for services. This is where getting a reference from your CFP could be invaluable.

Why Do I Need a Financial Planner?

If you have a substantial level of wealth and would like to preserve it and grow it, too, you will need a professional to help you. Emma Johnson of MSN Money states, “the fact remains that the financial landscape is increasingly complicated, and most people are not savvy enough — or interested enough — to navigate [it].”

Even if you consider yourself a financially savvy individual, you’re better off at least consulting a professional at some point. No matter how much you know about finances, a financial planner is an ultimate authority. Even if you choose to devise your plan, it is wise to hire a financial planner to look it over and make any necessary revisions.

Many reputable financial planners will assist you in working out a plan you can follow on your own for a flat fee. Then, if you want to tweak the plan later, you can. Sometimes a second set of eyes can help you avoid a costly mistake or reassure you your financial plan is on the right track.

Advantages of Using a Financial Advisor

The right financial planner can help you plan your road to financial freedom. A financial advisor can come in handy if you aren’t sure how to implement a retirement plan or if you feel overwhelmed by your debt situation.

A good financial planner can look at your situation and recommend a course of action that can benefit you in the long run. Your financial advisor looks at your entire picture and helps you determine how to meet your goals.

You need a financial advisor if you start to feel overwhelmed at the thought of working out your financial future. If you feel as though you are too disorganized, or if there is too much to do to get started, you could probably benefit from financial planning help. At the very least, you can get pointed in the right direction.

Research Financial Planners Before Hiring

It is always a good idea to do a background check or research an individual or company before hiring them to help you manage your money. The best place to start is by doing an online background check on the financial advisor, which you should be able to do for free in just a few minutes. Suppose you are satisfied with what you find online. In that case, it’s a good idea to interview the financial planner to understand how they get paid, their investment philosophy, how they can help you, and whether or not you are comfortable with the individual or company. If something doesn’t feel right, don’t be afraid to look elsewhere.

Criteria for Hiring a Financial Planner

The Securities and Exchange Commission lists a few questions you should always consider when hiring a financial professional. They include:

  • What are their credentials?
  • How are they paid for their services?
  • Can they provide references?

Understanding Credentials

A Certified Financial Planner is more likely to be trusted in the field than someone without the certification. To receive certification in financial planning, a person must hold a bachelor’s degree and have obtained a CFP certification. This includes mastering over 100 financial topics like general principles of financial planning, investment, retirement, and estate planning. Finally, they are given an exam to pass to be certified.

A financial planner affiliated with the National Association of Personal Financial Advisors (NAPFA) is also a huge plus and adds to their credibility.

How Does the Financial Planner Get Paid?

I don’t begrudge anyone from making a profit. Everyone should have the opportunity to be rewarded for their knowledge and hard work. But it’s important to know how your prospective financial planner is paid. The form of compensation they receive may affect the guidance you receive.

Some financial planners receive commissions for investments they recommend. This may present a conflict of interest regarding their investment advice, but it is not always the case. You want to ensure your financial planner has a fiduciary duty to you, meaning that your financial interests have to be put first.

In many cases, if you want a basic plan and some general direction for your specific situation, you can pay a flat fee or an hourly rate. However, if your finances are complex enough that you want a full-on financial adviser and money manager, you’ll need to pay attention to how your candidate is paid.

You’ll want to know whether he or she receives a percentage of assets under management and whether some income is based on commission. You may instead choose a fee-only financial planner who will charge you based on an hourly rate or as a percent of assets and does not stand to gain anything by making investment recommendations.

References Are Important – But Don’t Have Blind Faith

References are important as well, as with hiring any professional. A person may be a self-proclaimed financial planner yet be completely inept. Another consideration is hiring a financial planner from a large company or an independent financial advisor. There are pros and cons to both.

In addition, you should never hire the first planner you meet unless they are the best out of several interviews you have conducted with others. Your trusted friend may have given you the name of a planner who did great things with their portfolio. They very well may have, too. They may not, however, be the best fit for you. You will only know if you spend time with several financial planners to discuss the above points first.

Finally, running a background check on the financial advisor before you hire him or her is a good idea. A background check can alert you to consumer complaints, see if they have had any disciplinary actions, verify their licenses and certifications, and more. Also, consider checking online for reviews or with the Better Business Bureau. If a financial planner has been problematic, that will show up, and you can consider it a red flag to stay away.

How to Interview a Financial Planner

You have come to that point in your life where you have realized that you cannot do it alone. You need to plan for retirement, but you just don’t quite get it, so you need to find and hire the right financial advisor to help you along the way. Whenever you meet with that person, here are some general guidelines and questions you can ask to determine if he or she is the right fit for you.

1. Are you certified?

The term “financial advisor” isn’t a regulated term. Almost anyone can use it. Find out whether the advisor is a Certified Financial Planner™, Registered Investment Advisor (RIA), a stockbroker, or an insurance agent. Knowing an advisor’s designation tells you how he or she earns a living and what kind of products they’re likely to recommend.

What I mean by finding out if that person is a Certified Financial Planner™. The U.S. has approximately 800,000 and 900,000 supposed “financial advisors.” Of that, there are only approximately 61,000 who are CFPs or Certified Financial Planner™ professionals.

How do you know if that person is a CFP®? One really quick way to find out is if he or she has the credentials on his or her business card. Having “CFP®” after the name is a pretty good sign that he or she is certified. Another way to find out is to go to cfp.net and do a quick name search to see if that person comes up. The CFP® designation is one of the most recognized designations in our industry, and for those that have taken the time and extra effort to get that, it just says a lot about his or her commitment to the financial planning process.

Find out what it takes to become a Certified Financial Planner™.

2. How do you get paid?

There are many, many different combinations of this. It is essential to understand how you will pay for that person’s services.

Commission-based financial planners:

One method is called commission, which is like the brokers of old where they sell and buy stocks for you, and they get paid a commission from it. The obvious question is, if he or she is getting paid a commission for selling you an investment product, does he or she have your best interest at heart? I am not saying that every commissioned advisor out there is bad. It is just something that you need to understand the process.

Fee-only financial planners:

Other forms of getting paid are fee-only, where that person may be getting paid just for his or her work per hour. Maybe you pay him or her for 5 hours of producing a financial plan for you. That way, you know the rate you will be paying him or her per hour, so you know how much you will be paying upfront.

Assets Under Management:

Another form could be (this is also fee-only or fee-based) where you are paying a percentage of the assets that the advisor is managing for you.

For example, let’s say that you have a sizable 401K that you rolled over to that advisor, and he or she is collecting 1% on those assets; that is how he or she gets paid. You are paying him or her a percentage of whatever he or she manages.

What Additional Costs Are There?

Find out if you’d have to come out-of-pocket to pay for expenses like account set-up fees, transfer fees, or maintenance fees. Get any additional charges disclosed in writing before you agree to use the advisor’s services. Also, find out if you’d be required to sign a contract to retain the advisor’s services.

You also want to make sure that that is clear and that you understand that that is the only thing you are paying for. In some cases, there could be underlying fees associated with that. You want to make sure you understand from the get-go how much you are paying for his or her services.

3. What is your investment philosophy?

What I mean by that is, is this person an active trader, or is he or she a buy and hold? Does he or she believe in active or passive management? It is important to know this, especially if you have a certain investment philosophy yourself because you just want to make sure that his or her investment philosophy matches yours.

For example, suppose you are completely into indexing and passive investing. Yet, you are hiring a manager who is doing more active management, even though he or she might be more than qualified to manage your finances or do your financial planning. In that case, the investment philosophies might not mesh.

If you don’t see eye to eye, that might cause strain on the relationship going forward.

You just want to understand up front what his or her investment philosophy is. If he or she can also show you some model portfolios that he or she has used for current existing clients, you can get a sense of what he or she is investing in and how he or she invests.

4. Who is behind the scenes?

What I mean by this is, does the advisor work for a completely independent firm? Or are they represented by a brokerage firm or an insurance company?

By asking this question, hopefully, you will find out if he or she can offer unbiased investment advice or if he or she works for an outfit pushing certain investment products to you.

Most likely, if he or she is only able to sell his or her products, then that advisor might not have your best interests at heart. It is essential to understand what conflicts of interest may exist. If he or she has the best investment product known to man (if you find this, let me know), then maybe that is ok. You just need to understand where he or she is coming from and make sure there is no outside influence on any recommendations he or she has for you.

Additional questions to ask the financial planning firm:

  • How long have you been in business?
  • What additional services do you provide? Ask about specific services you need, such as investment management, retirement, college, estate, tax planning, or insurance analysis.
  • Ask about their typical client. Do they specialize in military families? Do they have experience building financial plans that feature pensions?

5. How often do I expect to hear from you?

Find out how often you’d receive updates, phone calls, and statements from a financial advisor. If having up-to-the-minute information is vital to you, ask if you would be able to check the status of your accounts online.

You can also find out how many clients this advisor is servicing here. If he or she is trying to service between 500 to 1000 clients and you are number 1001, how much service can you expect to get?

Maybe they have a sound system and team where they can service that many clients. If that is the case, then so be it. But you must find out where you fit that advisor’s business plan. More importantly, you want to know how much attention you will get compared to everybody else. There’s not much worse than feeling that you aren’t important.

6. Has anyone filed a complaint against you?

Finally, the last thing you will want to find out is if there are any skeletons in that advisor’s closet. What I mean by that is I read this report where only one-third of all clients will do a background check on their potential financial advisor. So more than two-thirds do no background check on that person getting ready to handle their retirement and investing.

That just amazed me!

You are completely turning that over to this stranger and not doing any background checks on them?!?! That stat I just shared with you was right about when the Bernie Madoff Scandal went down.

I would like to be optimistic and think that that number has changed or improved since then, but my hunch is that it has probably stayed the same. If you are getting ready to hire someone, it never hurts to do a quick background check on him or her.

It is free. It is easy. You can do it in less than 5 minutes.

Here’s how:

The first site you want to go to if he or she is a registered representative is finra.org, and do a user broker check function to find out if there are any reports against him or her for wrongdoings.

If he or she is an investment advisor, you can go to sec.gov and do a quick background check to see if there are any wrongdoings there.

Finally, if he or she is a Certified Financial Planner™ professional, you can go to cfp.net and do a quick search to see if there are any complaints filed there. You can also find out if the advisor has filed for bankruptcy or been charged with other crimes.

These sites, as I said, are all free. It is an easy check. It takes you literally less than 5 minutes to do it all. You can find anything there you need to know about that potential advisor.

Additional Questions About The Business

If you are heading out and meeting with that financial planner for the first time, I wish you the best. Take a notepad with you to ask questions. If that question you ask brings on more questions, then ask them because you want to make sure that you walk out of there with a clear, concise understanding of the whole process: how it all works, how the advisor is going to get paid, how they are going to serve you, and how he or she is going to take care of your money. Good luck!

Do You Need a Financial Advisor?

Knowing if you’re ready for a financial advisor can be challenging. Many wait for a significant life change to call in the big dogs. There’s nothing like getting married, having a baby or changing a career to make you realize it’s time to get your finances in order. And there’s absolutely nothing wrong with that kind of timing.

If you ever feel like you don’t know what more you need to do to maximize your financial goals, then schedule a meeting with a pro then and there. It will help you to find a direction or give you the peace of mind to know that you really are on the right track.

Choosing Your Financial Planner

Interviewing a financial planner and getting answers to the right questions will help you understand what an advisor can do for you and what they can’t. He or she should also ask you lots of questions and offer specific information about the services and typical results they provide for average clients.

It’s wise to interview at least two or three people, so you have some means of comparison. They might even teach you something you didn’t know about what you should be looking for in a good advisor. If you don’t like a prospective advisor or their firm, simply thank them for their time and move on to the next candidate.

As you decide on a financial advisor, you need to ensure that you work with someone you feel comfortable with. Most financial advisors are willing to speak with you for up to an hour, getting a feel for your financial situation and allowing you to vet them. This can be helpful as you choose someone to act as an adviser.

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About Jeff Rose, CPA

Jeff Rose is a Certified Financial Planner, an Iraqi combat veteran, and the author of the book, Soldier of Finance: Take Charge of Your Money and Invest in Your Future.

He is passionate about Roth IRA's, term life insurance, Cross Fit, Double-Double's at In-N-Out Burger, and smart financial decisions. You can find Jeff around the web at Good Financial Cents and Wealth Hacker Labs.

Featured In: Jeff's writing has been featured in Forbes, Entrepreneur, Business Insider, The Wall Street Journal, USA Today, Reuters, Fox Business, and many other publications.

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  1. Rhianna Hawk says

    This is a really helpful guide on what to keep in mind when looking for a financial advisor. My workplace is looking into hiring a financial advisor to help out because none of us really have any experience in the financial field. I’ll be sure to make sure that my boss knows to look for someone who is an RIA or one of the others you mentioned so we get someone who has the right expertise.

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