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How to Choose a Financial Planner

You’ve got a 401(k), some savings and a fairly decent grip on your finances. But you’re still not sure you’re making the most of your money. You’re not alone. For many people, the most complex part about personal finance is figuring out how to manage their dollars wisely. That’s why a financial planner can be a game changer.

What’s a financial planner?

It’s exactly what it sounds like: a financial planner is someone who helps you plan out your finances. Essentially, this person is trained to help you to invest, save or grow your money, depending on your goals. Often, hiring a financial planner could mean the difference between having your money sit idle or seeing it work harder toward helping you achieve your long-term financial objectives. If a financial planner seems like an appealing prospect to you but you have no clue what to look for or how to get started, keep reading.

Identify your financial goals

First and foremost, you have to know what you’re working toward. What do you want your money to do for you? Are you saving for a home? Are you preparing for retirement? Having an overall view of your financial goals is important to know before you try explaining them to someone else. Give this question some thought when choosing a financial planner. They will need to know your objectives to help you map out a plan and take the right steps toward achieving them.

Make sure they specialize in your needs

Financial planners don’t come in a one-size-fits-all. Some specialize in retirement, others in estates and still others may be certified to advise on a broad spectrum of financial services. Find one who works specifically with what you’re looking for and is licensed to sell securities that you might be interested in.

For instance, if you’re considering insurance products, your financial planner should have an insurance license with the state. Most financial planners are required to hold a Series 6 or 7 license, and those who don’t have the correct licenses aren’t allowed to sell security products, such as stocks or mutual funds. Even if they’re so much as offering you advice, financial planners are required to be registered with state or federal entities. So while you’re seeking one, be sure to ask them whether they’re licensed and legally authorized to help you with your specific needs.

Look for a certified financial planner

A certified financial planner (CFP) is the strongest designation that a financial planner can have. This credential is the golden badge of honor that shows they’re serious enough about personal finance because they’ve gone the extra length to take professional courses and pass a rigorous six-hour exam administered by the Certified Financial Planner Board of Standards.

Additionally, CFPs are required to take ongoing educational courses and remain ethical to maintain their title. Generally, because CFPs are held to strict standards and require special motivation, the expectations are that they can manage your finances better than someone who isn’t certified.

Figure out how they’re paid

Financial planners are typically on pay schedules that are commission-based, fee-based or fee-only.

Commission-based planners usually get paid anywhere from 1 percent to 10 percent for financial products that they sell you. Fee-based planners can earn commission, charge you a fee (typically 1 percent of the total amount of assets that they’re managing for you) or may get paid through a combination of the two.

Fee-only planners don’t earn commissions or sell products. This is often the most-favored model because planners get paid by the hour, through a fixed retainer, or by charging you a percentage of the assets that they’re managing for you. Their advice is believed to be the most unbiased since they’re not influenced by commissions, unlike the other two models.

The thought is that those who work off commission might steer you toward one product over another because of what they make rather than because it’s best for you. Fee-only planners, on the other hand, are more prone to be driven by your portfolio’s success and growth, because when it grows, so does the amount they charge you to manage it.

Dig deep into background and credentials

Anyone can fill their walls with impressive credentials and slap a financial planner title to their name. However, the truth is that many impressive-sounding credentials don’t require more than a few hours of studying to receive. Make sure you do your due diligence to identify the true competencies and qualifications of your financial planner.

  • Look for someone who has been practicing as a CFP for several years and has extensive experience.
  • Ask for credentials.
  • Do a background check, including a review of their Form ADV with the Securities and Exchange Commission or Form U5.
  • Check their disciplinary background on the Financial Industry Regulatory Authority website.
  • Ask to see proof of performance of other clients’ quarterly reports (with client name removed), and have them take you line by line through each asset and its resulting performance.

Don’t be afraid to interview and ask questions of financial planners. The more you ask, the better – after all, you’re trusting them with your hard-earned money.

Make the Ask

Finding a qualified financial planner might be as simple as asking friends or family for referrals. You can also visit the CFP or National Association of Personal Financial Advisors websites to search through a directory of financial professionals. Remember that while the process of finding the right CFP might appear overwhelming, the rewards you can reap if you land the right one will be well-worth these proactive measures.