Tips for Hiring a Financial Planner

mike wroblewski certified financial adviserI have recently been asked to present the basics about personal financial planning and what to look for in hiring a financial planner. In short, a personal financial plan pulls your whole financial life together in one place. By doing so, it allows you to get a good picture of where you are right now.  It also forms a foundation so you can prioritize your financial goals with a realistic understanding of what it will take to accomplish your objectives.

Financial Plan Basics

The scope of your financial life includes the following items:

  • Cash flow management and budgeting
  • Savings and debt management
  • College savings
  • Retirement planning
  • Investments
  • Insurance coverage
  • Estate planning

The key point to any financial plan is to ensure it meets your goals and objectives. I have found this very first step is the most important one.  Everyone has different dreams for the future, a unique relationship with money, and varied perceptions of risk.  All of these considerations need to be incorporated into your personal financial plan.

Your financial planner should be able to provide you an assessment of where you are now in terms of your cash flow and a listing of your assets and liabilities.  From that foundation, some of the common questions that people often hope a financial planner will answer include:

  • How do I prioritize my monthly savings and debt payments?
  • What’s the best way to pay off my student loans?
  • Should I prepay my mortgage?
  • When can I retire?
  • How much should I save each year to have a secure retirement?
  • How do I minimize my investment risk?
  • What kind of homeowners insurance do I need?
  • Do I need a personal liability insurance policy?
  • Should I place my assets in a revocable living trust?

Your financial plan should include answers and analyses that address your specific questions.  The plan should provide, for instances, how it much you should be savings to fund your child’s education or it should outline the minimum requirements for your auto liability policies.  The plan should also provide your with concrete steps to accomplish your goals and objectives as you identified them in the beginning of the process.

How Financial Planners Are Paid

In general financial planners are paid either by fees or by commissions (or a combination of both).  Generally, there are three compensation models used by fee-based financial planners:

1.  Assets Under Management (AUM): The planner will charge based on a percentage (1.0% – 1.5%) of investment assets managed. So if you have $500,000 in investable assets, the fee is $5,000/year.
2.  Retainer or Subscription Model: The planner charges a monthly or periodic fee to develop a plan and to answer questions (e.g., $100/month) for defined period of time (1 year).
3.  Flat Fee: The planner will charge a fee for a one-time evaluation (e.g., $1,000 – $2,500). These can be renewed on an as needed basis as circumstances warrant.

Each of these models can be supplemented by commissions on products that the planner sells, such as annuities, insurance policies, or estate documents.  It is key to find out how your financial planner is compensated to make sure your interests are aligned with the financial planner’s.

Planner Designations

There are multiple designations for the offering of financial planning services. Although I am biased, I believe the gold standard is the Certified Financial PlannerTM designation because of its rigorous knowledge, experience, and professional standards.  The following list includes some of the more common designations:

All Purpose Designations

  • Certified Financial Planner (CFP®)
  • Personal Financial Specialist (PFS) – (a supplemental designations for CPAs)

Investment-Oriented Designations

  • Chartered Investment Counselor (CIC)
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Counselor (ChFC)

Elderly-Oriented Designations

  • Certified Retirement Financial Advisor (CRFA)
  • Chartered Trust and Estate Planner (CTEP)

The most important thing I believe that a client should look for is to make sure the planner has a fiduciary duty to you, the client.  Certified Financial Planners (CFP®), Registered Investment Advisors, Personal Financial Specialists all have this duty. They owe a fiduciary duty to provide advice or investment products that are in the best interest of the client.

By contrast, broker/dealers have a lesser standard in which they owe a duty to provide “suitable” products for the client. Often broker/dealers are found at brokerage houses and do not provide a full complement of financial planning services.

The Obama Administration has recently proposed to impose a fiduciary standard on any individual providing investment advice to individuals.  These proposals have yet to be implemented.

10 Questions to Ask a Prospective Planner

The CFP Board suggests you ask the following questions when hiring a planner.  Many of these questions can be answered by using the planner’s website or other material.  The main point is to make sure you know the answer to each question before engaging a planner.

  1. What experience do you have?
  2. What are your qualifications?
  3. What financial planning services do you offer?
  4. What is your approach to financial planning?
  5. What types of clients do you typically work with?
  6. Will you be the only financial planner working with me?
  7. How will I pay for your financial planning services?
  8. How much do you typically charge?
  9. Do others stand to gain from the financial advice you give me?
  10. Have you ever been publicly disciplined for any unlawful or unethical actions in your career?

In my experience a successful financial planner-client relationship is one in which each party (the client and the planner) have realistic expectations on the outcome of the engagement.  From the client’s perspective, I think the following considerations are the most important to make sure your expectations are met:

– Do you trust and like the planner?
– What are your obligations/responsibilities?
– What are the planner’s deliverables and what are the timing of them?
– How much will it cost?

Hopefully, these tips give you a good idea of the scope of financial planning services and some pointers to follow in hiring a planner.

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11 Responses to Tips for Hiring a Financial Planner

  1. Rachel Lannister January 30, 2017 at 5:53 pm #

    I had heard in the past that financial advisors were great, as they could help you plan things like retirement. You wrote in your article that a financial advisor can help you prioritize monthly savings and debt payments, help you pay off student loans, and help you plan retirement. With how important retirement is, you’d definitely want some assistance to help you retire as smoothly and comfortably as possible. Thanks for the great tips.

  2. Jenna Hunter March 31, 2017 at 7:12 pm #

    My husband and I have been having trouble for the past two months with money and we haven’t been able to make the car payment this month. It was cool to read in the text that a personal financial plan pulls your whole financial life together in one place. I feel that this would be the best thing for my husband and me to ensure that we know where are money goes and how we can save it!

  3. Ivy Baker June 13, 2017 at 7:36 pm #

    This is some really good information about how to hire a financial planner. I am a young adult and I really want to make sure that I am creating good habits when it comes to managing my money. So hiring a financial planner does seem like a great way for me to just that. I liked that you pointed out that I should make sure that they are qualified to help me out with managing my money.

  4. Finley Moreira July 10, 2017 at 10:26 am #

    I liked how you gave a suggestion of questions asked that could be helpful when determining whether or not to hire a financial adviser. It seems like it would be helpful, especially how you mention that it can ensure you have realistic expectations as an outcome of working with your planner. It would be really helpful to me to have someone help me with my retirement planning, so I’ll definitely use your listed questions as a guide to hiring the right adviser.

  5. Ashley Turns October 24, 2017 at 9:01 pm #

    Thanks for the advice that we use a financial planning service that has a fiduciary duty to make sure that all the advice they give us is in our best interest. My husband and I are planning on investing soon and we are wondering what we should look for in the specialist we hire to help us. We will definitely only be using a financial planning service that has a fiduciary duty to use so that we know all the advice they give us is in our best interest.

    • Michael Wroblewski, CFP® October 25, 2017 at 6:28 pm #

      Thank you for the kind words.
      Make sure the planner has worked with others who are similarly situated.
      You also may want to ask for references and a sample of their work product.

      Thanks and good luck!

  6. Financial Products and Services November 7, 2017 at 7:28 am #

    Great information you have shared with us about the financial advisor as we see that there must be trust on our employees. I really appreciate you for providing such a valuable information.

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