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Choosing a Financial Planner That is Right for You

Source: sxc.hu Photo: kikashi
Source: sxc.hu Photo: kikashi

While it’s possible to be successfully manage your finances without a plan, those who create an actual financial plan are more likely to prosper in their personal finance lives. And, while it is certainly possible to create your own financial plan, the fact of the matter is that it can help to have fresh eyes on the situation, and who has a certain level of expertise when it comes to finances. It you really want to do it right, you should consider hiring a financial planner.

What is a financial planner?

A financial planner is someone who advises you about your finances. Financial planners can give you an overall view of your finances, and explain how your assets interact. They can also provide you with help in reaching a specific goal, such as retirement planning or saving for college. Some financial planners have specialties, while others provide broader financial advice. A financial planner can help you choose investment vehicles and different types of accounts to maximize your financial situation and reach your goals.

It is important, also, to realize what a financial planner is not. The Wall Street Journal offers this helpful insight:

Don’t confuse planners with stockbrokers — the market mavens people call to trade stocks. Financial planners also differ from accountants who can help you lower your tax bill, insurance agents who might lure you in with complicated life insurance policies, or the person at your local Fidelity office urging you to buy mutual funds.

One of the best ways to recognize a bone fide financial planner is to check for the CFP after the name. A Certified Financial Planner has passed a rigorous test to gauge financial planning knowledge, and has had a certain level of experience and education. When choosing a financial planner, the first thing you should look for is the CFP designation.

Deciding on the best financial planner for you

After you have found a few financial planners that are CFPs, check their credentials. You also want to make sure these credentials are up-to-date. Jeff Rose, CFP, at Good Financial Cents, recommends that you check these sources when doing a background check on your financial advisor candidates:

You should also find out about how the financial planner gets paid. Some planners receive commissions for steering you toward certain investments and financial products. In these cases, you might find that your money is not going to where it will benefit you the most. On the other hand, there are financial planners that operate on different systems. Some charge flat rates per hour, or charge per service ($1,500 for a financial plan, for example). Still others charge a fee based on a percentage of your assets under management. When your assets increase, so does the planner’s income. Choosing a fiduciary, someone who has pledged to act in the client’s best interest, is a good idea.

Many financial planners will meet with you for free and go over some of the basics of your financial situation with you. (Some planners may require account minimums, meaning you need to have a certain amount of assets for management.) It is vital that you find a financial planner that you trust and feel comfortable with. Watch out for planners who claim that you are going to get “market beating” results or make some other sort of promise. Also, pay attention to the questions that a prospective financial planner asks you. S/he should be interested in your goals, and should try to find out your risk tolerance and time horizons. Also make sure that the planner you are contemplating hiring addresses your total financial picture and not just few narrow aspects of it. Above all, the key to selecting a great financial planner is research, references and personal interviews.

In the end, choosing a financial planner is a lot like shopping around for any other product or service you want. You need to do your research, possibly test the situation and make a decision based on what you are comfortable with.

6 Responses to Choosing a Financial Planner That is Right for You

  1. Nice summary, always appreciate articles like this. Now more than ever a financial planner is a critical part of your team, which may also include your stock broker, insurance agent, tax planner and estate planner. Financial planners are usually best at looking at your complete and comprehensive picture so you can make sure your life goals and financial resources are best aligned.

  2. Thanks for the comments! And thanks especially to Natalie for including Canadian info and reminding us all of the BBB!

  3. Great, in-depth article. It’s clear that Americans need financial help, but how do they find it?

    Our firm, http://www.claroconnect.com matches people to financial advisors and planners. You should research the advisor’s qualification, fees, investment philosophy and think about what expectations each of you have for the relationship. Another thing many people don’t realize is that there are financial advisors who focus on business owners, retirees, women, socially responsible investing, and many other niches. So it is important to find an advisor who has experience working with other people in a similar financial situation.

  4. Miranda, I couldn’t agree more.

    “Above all, the key to selecting a great financial planner is research, references and personal interviews.”

    This really hits home with us. You can Rate & Review FAs and CPAs at fabeetle.

    Thanks again!

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