What a Good Financial Planner Does (and Doesn’t Do)

When just about anyone can call themselves a financial planner, it’s understandably hard for consumers to know whom to trust for financial advice.

See, unlike doctors and lawyers who have to meet certain standards in order to hold themselves out as certified professionals, there are virtually no requirements you have to meet in order to use the title “financial planner” or “financial advisor.”

As a result, there are many different kinds of people who call themselves financial planners, many of whom do very different things and provide very different kinds of services.

Which means that you, as someone looking for help with your financial situation, are left with the difficult task of separating the real from the fake with very little guidance as to who can actually provide good, objective advice, who is worth the fees they charge, and who is ripping you off.

So today I’d like to shed a little light on this topic and explain what, in my opinion, a good financial planner does and doesn’t do. Hopefully this will help you find someone who can help you make real progress, regardless of your current financial situation.

What a Good Financial Planner DOESN’T Do

1. Push Products

This is probably the biggest point of confusion around this topic.

See, things like mutual funds and life insurance policies can obviously be helpful parts of your financial plan. But they’re also products created by companies who want to make money, and those companies hire salespeople to sell those products for them.

And unfortunately, these salespeople often hold themselves out as financial planners or financial advisors, making it seem like they’re on your side – when their primary allegiance is to the companies paying them to sell their products.

So, how can you tell whether a particular “financial planner” is really just a salesperson? One way is to ask them how they get paid. If they’re fee-only, it means their only compensation comes from you, their client. If not, then they’re paid at least in part by the companies whose products they recommend.

Another way is to simply pay attention to the advice they’re giving. If they’re either advertising or aggressively pushing a particular product (cough, whole life insurance, cough), you can be pretty sure that their job is primarily to sell that product, not to give you objective advice. Or if they’re only recommending investments or insurance from a particular company, that’s probably because they’re paid by that company to make those recommendations.

The bottom line is that a good financial planner should be beholden to you, the client, rather than a particular product or financial company.

2. Claim They Can Beat the Market

If a financial planner is selling you on their ability to beat the stock market and provide superior investment returns, they’re missing the mark in two big ways:

  1. They almost certainly can’t deliver on their promise.
  2. Beating the market is never the goal anyways. The whole purpose of financial planning is to use your money to create a life you enjoy. A focus on beating the market is a distraction from what really matters and will likely lead to poor financial decisions.

What a Good Financial Planner DOES Do

1. Holds Themselves to a Higher Standard

While there are very few requirements in order to hold yourself out as a financial planner, there are plenty of ways for professionals to set their own bar higher and put themselves in a better position to serve their clients.

The CFP® certification is perhaps the most comprehensive and well known. In order to earn the CFP® mark you have to complete an approved financial planning curriculum, pass an exam, work as a financial planner for a certain number of years, adhere to an ethics code, and complete ongoing continuing education. It’s not perfect, but it’s the closest thing we have to a professional designation indicating a certain level of training and experience.

And there are plenty of other ways for financial planners to advance their expertise as well, from becoming an Accredited Financial Coach, to becoming an Enrolled Agent, to becoming a CFA, and more.

A good financial planner genuinely cares about being able to give you the best advice possible and seeks out training and education to help her do so.

2. Listens to You

A good financial planner cares primarily about YOU.

Instead of going on and on about all of the things he can do for you and all of the reasons you should work with him, he’ll ask questions designed to help him learn more about things like:

  • Who you are
  • What you care about
  • What makes you happy
  • Where you are now, both personally and financially
  • Where you would like to be, both now and in the future

A good financial planner will spend most of his first meeting with you asking questions and listening. After all, YOU’RE the one who matters here, and it’s impossible to give you good, personal financial advice without first understanding who you are and what’s important to you.

3. Makes Recommendations That Are in YOUR Best Interest

This probably sounds obvious, but most people who hold themselves out as financial planners are not required to do this, at least not all the time.

At the very least, you should seek out someone who is a fiduciary, meaning they have a legal requirement to act in your best interest. But even that’s not really enough, because some financial advisors are allowed to be fiduciaries sometimes… but not all the time.

For example, many people who sell mutual funds or insurance are “fiduciaries” when crafting advice, but not when selling a product. So they may give good advice, but then sell you a product that costs more or is less efficient than the alternatives, simply because they’re paid a commission to do so.

In other cases, you may find someone who has an inordinate focus on one part of your finances. For example, many financial planners are heavily focused on investments and may not be equipped to give you well-rounded financial advice.

In contrast, a good financial planner has no agenda or pre-set list of recommendations. She simply listens to you and uses her expertise to help you prioritize and choose the right tools for your needs.

If you need life insurance, she’ll help you find the best coverage at the lowest price. If you need to pay off debt, she’ll help you make a plan. If you need to invest, she’ll help you choose the best accounts and best funds, regardless of which company provides them.

In other words, a good financial planner makes the recommendations that YOU need based on your specific goals and situation, without regard for any other factors.

You Can Find a Good Financial Planner

There are all kinds of financial planners out there. There are planners who focus on wealthy retirees. There are planners who focus on new college graduates. There are planners who focus on helping doctors, or parents, or widowers, or LGBTQ couples.

There’s good financial advice to be found, no matter where you are in life. Hopefully the guidelines above will help you find it.

Matt Becker is a fee-only financial planner and the founder of Mom and Dad Money, where he helps new parents take control of their money so they can take care of their families. His free book, The New Family Financial Road Map, guides parents through the all most important financial decisions that come with starting a family.

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Matt Becker

Contributor for The Simple Dollar

Matt Becker, CFP® is a fee-only financial planner and the founder of Mom and Dad Money where he helps new parents take control of their money so they can take care of their families. His free time is spent jumping on couches, building LEGOs, and goofing around with his wife and their two young boys.