Evaluating and Choosing Financial Professionals

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What is it?

Although you may personally handle many of your financial affairs, sometimes you may need the services of a financial professional. Selecting the right financial professional means evaluating the services they can offer and their credentials, and finding someone whom you can rely on to give you good advice and/or service when you don't have the time or expertise to completely handle your financial affairs.

Choosing a financial planner

What a financial planner does

A financial planner is a professional advisor who can help you set financial goals and who can write and implement an objective and comprehensive plan to manage all aspects of your financial picture, including investing, retirement planning, estate planning, and protection planning. A financial planner can give you information and advice on a wide range of other topics as well. These are too numerous to mention but include managing your cash, obtaining credit, buying a home, and paying for a college education. If the planner doesn't have the specialized knowledge required to handle certain areas, such as tax planning or estate laws, he or she can coordinate a team of experts who can help you. Although he or she can help you with a single issue, a financial planner, unlike other financial advisors, looks at your finances as an interrelated whole and helps you plan accordingly.

What credentials to look for

When choosing a financial planner, you should be aware that some financial professionals who use this title are not truly qualified to give comprehensive financial planning advice. They may be trained in only one area, or they may be primarily salespeople marketing themselves as planners. Although some states heavily regulate planners, others do not. Because anyone can call himself or herself a financial planner without being educated or licensed in the area, you should choose a financial planner carefully. Make sure you understand what services the planner will provide you and what his or her qualifications are. In general, a financial planner will have one or more of the following credentials:

  • CERTIFIED FINANCIAL PLANNER™ professional (CFP®)--CFP® professionals must have a college undergraduate degree, have three years of related professional experience (or two years of apprenticeship experience that meets additional requirements), and have completed a course of study registered with and approved by the Certified Financial Planner Board of Standards, Inc. (CFP Board). They must pass a comprehensive exam that covers all aspects of financial planning. In addition, they must adhere to a professional code of ethics and fulfill 30 hours of continuing education every two years. Many also belong to the Financial Planning Association, a professional organization. If a planner says that he or she is a CFP® licensee, ask to see the planner's CFP Board license or visit the CFP Board's website, www.letsmakeaplan.org, to verify credentials.

  • Chartered Financial Consultant® (ChFC®) and Chartered Life Underwriter® (CLU®)--To receive either designation, planners must have at least three years of experience and complete a course of study through the American College in Bryn Mawr, Pennsylvania. Certification is rigorous and prestigious, and planners earning these designations must adhere to certain ethical standards.

  • Accredited Personal Financial Specialist (PFS)--The PFS designation is granted to CPAs who are members of the American Institute of Certified Public Accountants, and who earn a minimum of 75 hours of personal financial planning education, successfully pass a PFP-related exam, and have at least two years of full-time business or teaching experience.

  • Registered Financial Consultant (RFC®)--This designation is awarded by the International Association of Registered Financial Consultants (IARFC) to advisors who have a college or graduate degree in financial services, or who have earned an IARFC-approved designation or professional degree. The RFC® also must have a minimum of four years experience as a full-time practitioner or educator in the field of financial planning or financial services. He or she must also meet licensing requirements, and they must complete continuing education courses, and adhere to a code of ethics.

Many financial planners are also specialists in certain fields or can refer you to the type of specialist you need. Although you may need the help of a specialist in their area of expertise, you should not rely on them to provide general financial planning advice unless they are also qualified financial planners. Specialists include the following:

  • Accountants--Accountants prepare financial statements and tax returns and give tax advice, something many financial planners may not do. Accountants are often Certified Public Accountants (CPAs) or Public Accountants (PAs). Accountants may also be Personal Financial Specialists (PFSs).

  • Estate planners--Estate planners help you plan your estate and give advice on transferring and managing your assets before and after your death. If the estate planner is an attorney, he or she can give legal advice and prepare necessary legal documents. An estate planner may be an Accredited Estate Planner (AEP).

  • Insurance agents--Insurance agents sell various insurance products, something financial planners can't do unless they are insurance agents licensed in the state in which they practice. Insurance agents often hold the Chartered Life Underwriter® (CLU®) designation.

  • Investment advisors--Investment advisors give you advice about investments and help you plan a strategy to manage your investment funds. They are not primarily salespeople. In fact, they cannot sell securities without a license. They must be registered with either the Securities and Exchange Commission or a state securities agency. Financial planners may or may not be licensed to sell securities, but they are often Registered Investment Advisors (RIAs).

  • Securities brokers--Securities brokers (stockbrokers) are primarily salespeople who buy and sell stocks, bonds, and mutual funds. They must be licensed by the state and be registered with a company that is a member of the Financial Industry Regulatory Authority (FINRA).

How to find a financial planner

Ask friends, relatives, business associates, your attorney, or other professionals who share your financial values to recommend a financial planner. If you can't get a personal recommendation, visit the CFP Board's website, www.letsmakeaplan.org where you'll find a search tool.

How a financial planner is compensated

You may pay your financial planner a fee to develop a financial plan--either an hourly rate or a flat fee--with no asset management or commissions required. If the planner is managing your assets, then his or her fee may be equivalent to a small percentage of your assets and/or income. Or your financial planner may earn his or her living by receiving commissions from products he or she sells to you. Some planners use a combination fee-and-commission structure whereby you pay a fee for the development of a financial plan and the planner also receives a commission from selling you products. You should ask the planner you are considering his or her fee structure and ask for an estimate of what it might cost to use his or her services.

When calculating how much it will cost to use the services of a financial planner, consider fees, commissions, and related expenses such as transaction fees and management fees related to the products they recommend.

Interviewing and evaluating a financial planner

It's a good idea to interview more than one financial planner. Personality styles, financial planning philosophies, qualifications, and fee structures may vary widely. When interviewing a financial planner, start by asking the following questions:

  • What are your qualifications and professional credentials? How long have you been in practice, and in what areas do you specialize? How many clients do you have? Are you a member of any professional associations?

  • How would you describe your financial planning philosophy? How will you help me assess my goals? Will you give me a written plan? Sell me investment and/or insurance products?

  • How are you compensated? Can you estimate how much using your services will cost me?

  • Have you ever been disciplined or had any professional licenses or designations revoked or suspended?

  • Do you foresee any conflicts of interest from working with me? Are you affiliated with any company whose products and services you might recommend to me? Do you plan on referring me to other professionals, or can you handle all my planning needs? If so, can you provide me with a list of names of these individuals?

  • How do you keep yourself abreast of new developments in the field of financial planning?

Before deciding to work with a planner, thoroughly check out his or her credentials and licenses. To do so, ask the planner to provide you with a list of credentials and licenses he or she holds, and find out what organizations he or she is regulated by. Your planner should provide you with written disclosure documents that contain this and other information. CFP® professionals and other planners who follow ethical guidelines are required to give these disclosures to you. Then call the organizations listed and check out the information the planner gave you. Evaluate the answers the planners have given you, and choose the qualified professional who can best give you the advice and services you need. Make sure that you feel comfortable with his or her financial planning philosophy and that you trust him or her to manage your finances.

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