Finding a Financial Advisor

Couple talking to financial advisor in living room
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With a little knowledge and willingness to create and follow a financial plan, most people can adequately manage their own finances. Even so, there are many instances where you don’t have the time, or maybe you have a complicated situation that may need the assistance of a finance professional. In order to hire the right person, it is important that you understand what to look for and what to avoid.

Understanding Your Needs

Before you can even begin to seek out a professional, you have to understand what it is you want out of a financial planner. Do you need comprehensive planning advice? Do you just need a retirement portfolio review? Are you dealing with business planning issues?

Different planners have different areas of expertise, so it is very important that you find someone who can address your specific situation. When you are armed with some basic information surrounding your specific needs, you can narrow the choices down without having to sift through dozens of prospects.

Talk to Others

One of the best ways to find potential planners is by talking to others. If you already have an accountant, ask if they know of any planners that could assist with your situation. Check with friends and family or anyone else that you trust for referrals as well. It is better to get some first-hand suggestions before scouring the phone book or the internet.

Making Sense of Designations

In the financial services industry there is no shortage of certifications, designations, and acronyms, but understanding what they mean will help you know a little bit more about your prospective planners.

  • Certified Public Accountant (CPA): A CPA is an experienced accountant that has met strict education and licensing requirements. A CPA will be a good choice for tax issues.
  • Personal Financial Specialist (PFS): CPAs can undergo additional financial planning education and, after meeting certain exam and experience requirements, can use the CPA/PFS designation.
  • Certified Financial Planner (CFP®): The CFP is one of the most respected financial planning designations and requires a minimum of three years of experience, adherence to a strict code of ethics, and passing a lengthy examination. These individuals will be able to provide a broad range of financial advice.
  • Chartered Financial Consultant (ChFC): These are typically insurance professionals who specialize in some aspects of financial planning by meeting additional education requirements in economics and investments.
  • Chartered Retirement Planning Counselor (CRPC): A CRPC designation is offered through the College of Financial Planning to allow planners to specialize in retirement planning. These individuals must also pass an exam and meet a strict code of ethics.

Keep in mind that there are over 50 designations in use, so this is only a brief overview of the most common ones you’ll likely encounter. Some planners may have multiple designations, while others may not have any.

Interview the Candidates

Once you have found a few local planners that appear to meet your requirements, it is time to meet with them. Any reputable financial planner will hold an introductory meeting at no cost. This first meeting is beneficial to both you and the planner. It provides an opportunity for you to explain what you’re looking for and ask questions, while the planner can determine if they are suitable for the job.

Find out How They Are Paid

Financial planners can be compensated in a number of ways. This is an extremely important question to ask because you want to be sure they are advising you with your best interests in mind, not just making a sale.

  • Commission: This has traditionally been the most common way financial professionals are compensated. What this means is that when you purchase an investment, a certain percentage of the total purchase will be deducted and a portion of that will go directly to your advisor. This is not necessarily a bad thing, but you have to be very careful that they are not forcing you into an investment just so they can make money.
  • Flat Fees: Another common method of compensation is a flat fee. Some will charge a flat hourly rate or may charge a flat fee for putting together a comprehensive financial plan. Typically, there is little concern for a conflict of interest since they are getting paid whether you purchase any investments or not.
  • Fee-Based on Assets: While not as common as the other two options, although becoming more popular, some planners charge an annual fee that is based on a percentage of the assets you have invested with them.

Although these are the three most popular methods of compensation, you are likely to find many planners you meet with will offer a combination of these methods. Either way, it is up to you to understand how they are compensated and to determine if that fits what you are trying to accomplish by hiring a professional.

Become Comfortable With Your Planner

After you have determined your needs, sought out references and referrals, met with prospective planners, and finally made a decision, you have to make sure you feel comfortable with your planner.

The professional you choose will need to know a lot about you and your finances. You have to be comfortable enough to share this information and be as truthful as possible. If not, you may be putting your finances in jeopardy.