The Ultimate Guide to Selecting a Financial Planner

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Welcome to the latest installment in my “ultimate guide” series, where I attempt to lay out all of the things you need to know and consider when making a purchasing decision or a personal finance move. You can check out the “Ultimate Guide” archives for a full selection of these guides.

Today, we’re taking a look at selecting a financial planner. Hiring the right financial planner can be a very daunting task, with a sea of titles and acronyms out there and many advisors clouding the water with clever marketing. Not only that, financial advice is some of the most crucial advice that we receive, as it is often crucial to the planning of our future.

How do we know if we’re hiring a good one? One can never be sure, but here’s how you can navigate the waters and figure out if you need an advisor and, if so, how to find one that’s right for you.

Advisor? Or planner? Let’s settle this issue right off the bat. First, anyone can call themselves a “financial planner” or a “financial advisor.” Those terms are generic and can be used by anyone who wants to.

Generally, the term “financial planner” refers to someone who helps you set up a financial plan of some kind – a method for solving whatever financial problem you have – and a “financial advisor” is a person who helps you implement that plan by choosing specific investments and insurance. Financial advisor tends to be a broad term that includes investment advisors, insurance salesmen, and other such financial professionals.

However, due to the fact that many personal finance professionals use the generic versions of these terms to describe themselves, it’s really hard for people just seeking answers to their financial questions to get any real meaning out of those terms.

For the rest of this article, I am going to use the term “financial planner” to refer to both groups of people. This is because there is so much overlap between the positions and because, for the most part, people will seek out specific financial advisors to answer specific questions once they reach that point, but they’ll often start with financial planners unless they’re sure of the specific product they need.

However, virtually every piece of advice in this article works for financial planners as well as virtually any specific type of financial advisor you may need.

Why Get a Planner At All?
This is the first question and it’s a vital one. Why do we need a financial planner at all?

Generally, I’m a huge advocate of figuring out financial problems for yourself. Nothing beats self-education. If you can learn about a specific problem in your life and can come up with a solution on your own, then you’re doing great. You are the only person that has you as the primary person that matters.

Even if you can’t figure out an answer to your question, the more knowledge you have before you walk in the door, the better you’ll be at figuring out which planners are actually in your corner and which ones are simply selling you products without taking your interests to heart.

So, the first step in this process is always learning. My suggestion is to hit the library and check out some books on the topic that you’re concerned about, whether it’s retirement planning or setting up a trust or whatever else it might be.

For things like frugality and setting up a basic budget, you do not need a financial planner. A financial planner starts to become useful when you have money in the bank and you need to make decisions regarding that money. If you do not have substantial amounts in the bank (or are looking at inheriting such money shortly), you don’t have a need for a financial planner.

When do you need a planner? You only need a financial planner when you’re facing financial decisions regarding your assets that you do not feel comfortable resolving on your own.

As I stated earlier, many issues along these lines are solved simply through self-education, so that should always be the first step in the journey toward a financial planner.

Screening Planners
Once you’ve learned more about the issues surrounding your situation and you realize that you still feel more comfortable hiring an expert to walk you through it, the next step is to screen planners.

What do I mean by “screening” them? In your area, there will be a lot of people out there advertising themselves as financial planners. You’re not going to want to actually interview all of them. Instead, you’re going to want to whittle that list down to a small number first, and you’re not going to want to do that by simply sticking your finger in the phone book and dialing the number you’re pointing at on the “financial planner” page.

The first step, of course, is to get a list of financial planners in your area. My suggestion for that is to start by using the search tool at CFP.net.

I’d use this listing because the people listed there have put in the effort to become certified financial planners through the CFP Board. While this doesn’t weed out all of the potential lemons, it does weed out those who aren’t putting in the footwork to get certifications in their field. The CFP certification is about as close to a “standard” certification as there is in the field, so it’s a good place to start.

There are a few steps I would go through to quickly whittle down this list.

First, I would look for planners who are marked as “fee-only.” As I’ve discussed before, financial planners who work on commission have the desire to earn a good commission as part of their motivation. Planners who work via fee only are not looking for commissions – their only interest is in helping you. You pay them a fee for advice and that’s the only way they earn money from you.

The next step I’d take is to ask your social network for suggestions and cross-check those suggestions with this list. I would personally approach people you know who may have used financial planners in the past and ask for their recommendation. Who did they use? Did that person do a good job?

The people you’ll be left with are fee-only financial planners who have enough initiative to get certification and have a positive recommendation from your social network. That’s a pretty good list to start from, plus it’s likely a short one.

Those are the ones I’d move on to interviewing.

Interviewing Planners
I would never hire a financial planner without a face-to-face meeting first. A face-to-face meeting can tell you a great deal about a financial planner, even if you’re far from an expert on the issues you want to talk about.

I speak from experience here. Several years ago, my wife and I met disastrously with a financial advisor. He was ill-prepared, highly disorganized, and seemed far more focused on selling us things we didn’t want than listening to our situation. That meeting moved us from being confident in his work to moving our business elsewhere.

A while back, I wrote an article on five questions you should ask any financial advisor and most of them still hold true here, though your filtering process should have effectively answered two of them. The other three I would always ask are:

What areas do you specialize in?
You want to know what that planner’s specialties are. Are they an expert in estate planning? Are they an expert in helping people get investments sorted out? Are they an expert in insurance and protection of assets?

You’ll want to ask this before giving much information about your own situation. That way, the person can’t give an answer that’s swayed by what they already know about you.

What are your potential conflicts of interest?
Every financial professional has some conflict of interest. If someone tells you they don’t have any, then you should be very wary.

A good financial planner will tell you about their conflicts very directly and clearly. They should also be able to explain how they mitigate those conflicts so that they have minimal impact on you as a customer.

What sets your advice and suggestions apart from alternatives?
This is a good question to ask once they’ve begun to outline a plan for you. They should be able to compare and contrast what they’re telling you with other options and explain why this one is the best for your situation. Their answer should tie directly into your situation.

A final note: when you reflect on the interview, you should not feel as though the planner did most of the talking. The conversation should be close to 50/50 and, if anything, you should have talked more. The planner should have been asking you lots of questions in an effort to understand your situation as clearly as possible before offering any advice at all.

Now, most planners will offer a low-cost or free initial meeting, which is where you should be able to run through these things and get a feel for the person.

After interviewing all of the potential candidates, one will likely emerge head and shoulders above the others for you – and that should be the one that you hire!

Good luck!

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