When you’re looking to manage your money, you may be overwhelmed with all of the financial possibilities. Should you invest in stocks, mutual funds, downsize your home, liquidate your assets… the list goes on and on.
If you spend most of your time in a non-finance-oriented career, the challenge to stay up-to-date on personal finance requires its own investment of time, energy, and resources.
If you’re ambitious and but don’t have tons of free time, a professional financial planner may be the best route to ensure a thriving financial future, offering their expertise and know-how to navigate the rocky path towards financial freedom.
That’s all well and good, but how do we pick a financial planner? What criteria should smart consumers look for? In this article, we’ll tackle how to hire a good financial planner and tips you should follow.
What is a Certified Financial Planner
Not all financial planners are created equal. To ensure the best handling of your finances, it’s best to find a certified financial planner, or CFP, which is a professional certification given out by the Certified Financial Planner Board of Standards (the CFP Board, for short).
To receive this certification, financial planner must meet education standards, pass exams, have sufficient experience, pay the certification fees, and commit to an ethical standard (see “fiduciary” below).
The job of a CFP is to act as an advisor, steering clients towards financial solutions that can help save and invest their money. They can offer specialized services to meet financial goals—like securing a mortgage or increase your long-term growth potential.
CFPs come in a variety of specialties, with some focusing on retirement or insurance, while others offer a broad range of strategies to keep more money in your wallet.
Typically, CFPs receive 1% of your annual assets to manage them, but the cost could be worth it. If you’re investments grow to $15,000 in a year, the CFP only receives $150 annually—a bargain!
Tips for Choosing a Certified Financial Planner
There are a number of things to consider when choosing a financial planner (CFP) and otherwise. Let’s take a look at how to choose the best one for your financial situation:
- Recommendations: Word-of-mouth is a very powerful thing. To look for a financial planner, start by asking people in similar financial (and familial) circumstances if they use a planner. While most people are shy to discuss finances, everyone likes to reward the talent they hire (sometimes receiving recommendation bonuses in the process).
- Credentials: First off, find a financial planner that is a certified financial planner (CFP). CFPs are licensed and regulated. They also take mandatory classes on a wide range of financial planning aspects.
NAPFA, or the National Association of Personal Financial Advisors can offer leads for planners that are fee-only (their sole means of revenues comes directly from clients), accept no commissions, and are fiduciary (see below). However, planners are not CFPs by association, but their standards are equivalent to (and often exceed) CFP requirements.
In addition, you may find a planner within the Garrett Planning Network (GPN). The GPN is a group of CFPs (or those actively seeking certification) that pledge to help clients with smaller projects for an hourly fee. A CFP from the GPN can be the perfect solution for clients that only have a handful of questions.
- Pay Structure:As a rule of thumb, you will typically want to avoid commission-based advisers. Planners who work on commission may steer you to purchase unwanted or unneeded financial decisions (ie. life insurance package, mutual funds, umbrella insurance, etc.), especially if they’re getting a cut of that revenue (or finders’ fees from companies).
On the other hand, fee-based CFPs are not always ideal. A CFP that only earns 1.5% of your annual assets might be incentivized enough for you to pursue investment strategies that would shrink their fees, like liquidating your investments or purchasing a large home.
- Fiduciary Duty: Be sure to read the code of ethics that your CFP (or financial planner) conducts their business. What you’ll be looking for is the word “fiduciary”. Without getting too deep into the definition, fiduciary essentially means that the planner has pledged to act in the best interests of the client at all times in accordance with legal precedents. In addition, a planner who acts as your fiduciary can be brought to court (or arbitration) should you feel that they are not acting to your benefit.
Industry-wide, investment professionals who aren’t fiduciaries are held to a lesser standard called the sustainability standard. A sustainability standard essentially means that any financial policy or investment only has to be suitable for you, while not being ideal—or in your best interest. Often, this not having a planner act as your fiduciary should be a deal breaker.
- Background Check:It might seem like common sense, but when looking for a planner, start by asking:
- Has the prospective planner ever been convicted of a crime (financial or otherwise)?
- Has any regulatory body or investment-industry group ever put the planner under investigation?
- Ask for references of current clients whose financial situation and goals are similar to yours.
It’s also important to make sure that the planner’s credentials are current. A quick search on Google can reveal:
- their professional profile (ie. LinkedIn),
- which organization administers the designation (verify by phone or email)
- their discipline record (if a CFP), which can be found here. For brokers, FINRA’s Broker Check can help you investigate any complaints or disciplinary matters.
In conclusion, making the jump to have someone to manage your finances takes as much planning as it does to manage your finances.
However, having an expert on your side can grow your income in ways that those inexperienced to financial matter may not know. If you follow the tips provided, you’ll have no problem finding a quality professional that’s on your side.