Happy New Year everybody! To start the 2012 Year off properly, I thought it might be helpful to offer some thoughts about what questions you should be asking when choosing a Financial Planner.
This may be one of the most important decisions you make with your finances and asking the right questions could be the difference between using a Financial Planner that adds value versus using a Financial Planner that takes advantage of you.
Q1. WHAT EXPERIENCE DO YOU HAVE?
Find out how long the planner has been in practice and the number and types of companies with which she has been associated. Ask the planner to briefly describe her work experience and how it relates to her current practice. Choose a financial planner who has experience counseling individuals on their financial needs.
Q2. WHAT ARE YOUR QUALIFICATIONS?
The term “financial planner” is used by many financial professionals. Ask the planner what qualifies him to offer financial planning advice and whether he is recognized as a CERTIFIED FINANCIAL PLANNER™ professional or CFP® practitioner, a Certified Public Accountant/Personal Financial Specialist (CPA/PFS), or a Chartered Financial Consultant (ChFC). Look for a planner who has proven experience in financial planning topics such as insurance, tax planning, investments, estate planning or retirement planning. Determine what steps the planner takes to stay current with changes and developments in the financial planning field. If the planner holds a financial planning designation or certification, check on his background with the CFP Board or other relevant professional organizations.
Q3. WHAT SERVICES DO YOU OFFER?
The services a financial planner offers depend on a number of factors including credentials, licenses, and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or on tax matters.
Q4. WHAT IS YOUR APPROACH TO FINANCIAL PLANNING?
Ask the financial planner about the type of clients and financial situations she typically likes to work with. Some planners prefer to develop one plan by bringing together all of your financial goals. Others provide advice on specific areas, as needed. Make sure the planner’s viewpoint on investing is not too cautious or overly aggressive for you. Some planners require you to have a certain net worth before offering services. Find out if the planner will carry out the financial recommendations developed for you or refer you to others who will do so.
Q5. WILL YOU BE THE ONLY PERSON WORKING WITH ME?
The financial planner may work with you himself or have others in the office assist him. You may want to meet everyone who will be working with you. If the planner works with professionals outside his own practice (such as attorneys, insurance agents or tax specialists) to develop or carry out financial planning recommendations, get a list of their names to check on their backgrounds.
Q6. HOW WILL I PAY FOR YOUR SERVICES?
As part of your financial planning agreement, the financial planner should clearly tell you in writing how she will be paid for the services to be provided.
Planners can be paid in several ways:
- A salary paid by the company for which the planner works. The planner’s employer receives payment from you or others, either in fees or commissions, in order to pay the planner's salary.
- Fees based on an hourly rate, a flat rate, or on a percentage of your assets and/or income.
- Commissions paid by a third party from the products sold to you to carry out the financial planning recommendations. Commissions are usually a percentage of the amount you invest in a product.
- A combination of fees and commissions whereby fees are charged for the amount of work done to develop financial planning recommendations and commissions are received from any products sold. In addition, some planners may offset some portion of the fees you pay if they receive commissions for carrying out their recommendations.