7 Steps on How to Find a Good Financial Planner
When handled mindfully, personal finances are not terribly difficult to manage. However, there are situations in which it can be wise to hire a good financial planner. Whether it’s being recently married, starting a new business or planning a big investment, a financial planner can help you reach your financial goals faster while avoiding pitfalls. When it comes to how to find a good financial planner, there are some aspects you must consider.
However, it’s not always easy to find the right person for this important job. Because your savings are on the line, choosing the wrong financial planner can be effectively disastrous for your finances. With that in mind, this article will teach you how to find a good financial planner in seven steps.
1. Consider the Planner’s Type of Payment
Anyone who knows to find a good financial planner will tell you that you should avoid commission based advisers. Instead, it is advisable to find a planner that works on a fee-only payment structure. The reason is that, unfortunately, commission-based planners tend to have financial goals that differ from yours.
At the same time as they provide advice for their clients, commission-based planners work with insurance companies and other entities that pay them to push their products. Even though they aren’t always perfect, fee-based financial planners do not have any incentives to sell you a product that does not benefit you. Instead, they will charge a certain amount per hour helping you devise an advantageous financial plan.
2. Learn the Denominations
Another important aspect of understanding how to find a good financial planner is learning the professional designations they use. This is particularly important regarding the three different types of certification that financial planners can obtain:
2.1. Chartered Financial Analyst (CFA)
A CFA certified planner is a professional that has been rigorously tested in various fields. They include financial securities, financial analysis, investing, banking and portfolio management.
2.2. Certified Financial Planner (CFP)
To obtain a basic certification, a financial planner needs to hold a bachelor’s degree and complete a college-level program of study. Normally, the program will be in personal financial planning. However, an accepted equivalent will also be accepted.
In addition to these degrees, it is required that those aspiring to obtain a CFP certification book at least three years of industry experience. Finally, they are also required to abide by a code of financial ethics.
2.3. Chartered Financial Consultant (ChFC)
This type of certification is similar to the CFP certification, even using the same core curriculum. However, it does not require aspiring certified financial planners to take a comprehensive board exam or abide by an ethical code.
3. Search for a Fiduciary
A fiduciary is a financial planner that has submitted a pledge to act in the client’s best interest at all times. This entails that they will be held to a higher standard than those financial planners who are not fiduciaries. Non-fiduciaries are only held to the sustainability standard, which is much less rigorous. For that reason, those who know how to find a good financial planner understand the importance of finding a fiduciary.
4. Consider Various Candidates
Those who want to know how to find a good financial planner often overlook the importance of interviewing various different candidates. Of course, one of the most important things you need to find out is what their fees are.
However, it’s also important to get the prospect financial planner to give a presentation detailing their services and its benefits. Try to get the full picture of the vision they have for your finances. Of course, you should take advantage of this time to evaluate all aspects of their personal and professional abilities.
5. Don’t Be Afraid to Ask the Tough Questions
One of the key techniques to get to know a candidate is asking the hardest questions straight away. Often, those who think they know how to find a good financial planner fail because they are too polite or nervous to ask the tough questions. At the very least, you should always ask for recommendations and a rundown of their complete background.
6. Demand a Third-Party Custodian
Understandably, those who do not know how to find a good financial planner worry about the safety of their money. One of the most important steps you can take to ensure your hard-earned savings won’t be wrongly spent is demanding a third-party custodian for them.
Independent custodians such as Charles Schwab or Scottrade can take possession of your money, preventing any type of ill-spending. This will prevent unscrupulous planners to drain your savings or use them to fake account statements. Infamously, the now-convicted white collar criminal Bernie Madoff used his clients’ money in this way, ruining their finances completely.
7. Run a Thorough Background Check on Every Candidate
Those who know how to find a good financial planner understand the importance of being thorough. In order to avoid future problems, it is always a great idea to run a background check on every candidate, no matter how trustworthy they seem. One of the most useful tools for doing this is the IAPD database.
Here, you can find a Form ADV for every certified financial planner that’s currently available. Additionally, there are resources that allow you to find their broker record. Of course, you can also ask for a record from the organizations that certified the financial planner. For example, you can try the CFP Board or the American Institute of CPAs.
There is absolutely no doubt that, no matter your situation, your personal finances are incredibly important. Trusting a person with them is a huge step that should not be taken lightly or without giving it much thought. Luckily, after going through this step-by-step guide on how to find a good financial planner, you will have at your disposal the knowledge you need to start your search.
Combine these tips with a healthy amount of character judgment, and you will be sure to pick a winner. Do you have any other piece of advice for finding a good financial planner? Let us know in the comments!