How to Choose a Financial Planner

June 15, 2017
Palmer Price

Just like your patients seek your expertise to keep their mouths healthy, you should consider hiring a financial planner to keep your wallet happy. There are several routes to take, and depending on your needs, some options may be better than others. Let our certified financial experts show you what to look for and how to find it.

According to financial experts, there are a number of important factors to consider before selecting a planner, such as how they get paid.

Most of us hire a mechanic to tune up our cars. We call an electrician when the lights are not working. We turn to real estate agents, caterers and landscapers to fill specific and targeted needs.

So why would you leave managing your money to a rookie?

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Even if you are comfortable with investing and an ace at managing your personal budget, hiring a pro could give you an edge. That's because a financial planner — someone who looks at your entire money picture — can give you objective advice that goes beyond your portfolio.

We are not talking about hiring a broker or someone to gamble with your hard-saved money, but someone who will look at your goals and your resources and help you plan a future of financial independence. Compare your personal financial plan to your patients' dental needs.

Say a patient needs a crown replacement. It is not an emergency, but it could become one if the tooth breaks.

The patient sees it differently. The tooth is not hurting, and they would rather spend their money on a whitening procedure. It is your job to present the best possible strategy for the patient's oral health. Financial advisors have a similar job, but for the health of your finances.

"As an advisor, we routinely ask questions of business owner clients to understand their challenges on everything from revenue, costs and marketing to work-life balance and exit strategies for retirement," said Bonnie Hughes, a certified financial planner with American Capital Planning in Leesburg, Va. "That’s in addition to the real-time planning needed to understand if they can fund future goals."

WHAT TO LOOK FOR

Anyone call hang a shingle and call themselves a financial planner. But you don't want just anyone. You need someone with education, expertise and ethics — someone who has proven themselves.

The gold standard is the certified financial planner (CFP) designation, said Rick Fingerman, a CFP with Financial Planning Solutions in Newton, Mass. He said hiring a CFP offers certain assurances.

"They have gone through a pretty rigorous education process, have sat and passed a two-day comprehensive exam, have a Bachelor's degree, have at least 6,000 hours of professional experience, and last but not least, adhere to the CFP Board's Code of Ethics," Fingerman said.

While there are many good financial advisors who don't have the CFP designation, it is reassuring to know CFPs have a fiduciary duty, meaning they're required to put their clients' interests first.

That means they are not going to sell you products or investments because they'll make a hefty commission, but instead will recommend the financial instruments most beneficial to your needs, Hughes said.

"If all the folks who call themselves financial advisors did this, many of the product sales would not happen, and that means a lot of the fees advisors receive would also go away," Hughes said. "I can’t imagine paying for any service where I did not have confidence the person I’m paying didn’t put my interests first."

Depending on your personal situation, you may want a CFP who has additional designations and additional specialty training.

Certified public accountant (CPA): These are tax professionals. Some have the added PFS designation, which stands for personal financial specialist. CPA-PFS pros have similar experience to CFPs.

Certified divorce financial analyst (CDFA): Planners with a CDFA designation have expertise in divorce planning.

Certified college planning specialist (CCPS): These pros have expertise in all aspects of college planning.

HOW THEY GET PAID

One of the most important questions to ask any advisor is how they get paid. If they avoid the question, that is a huge red flag, and you should cross the person off your list. Planner payments come in three forms: fee-only, commission and a combination of fee and commission.

Fee-only planners do not make any money by selling products or investments. Instead, they are selling only advice. Commissioned advisors suggest certain investments or products, and if you buy, they earn a commission from the company that offers the product.

"The advantage of this method is there are no direct costs paid by the client," Fingerman said. "However, this method could have conflicts of interest as the advisor may get paid more for using one company over another."

Hughes said she's biased in favor of fee-only, which is how she has practiced for 27 years. The planner's compensation method is important because you can put that in context with the advice you are receiving.

"If I worked on commission and I fed my family based on selling you an annuity, I guarantee that’s going to be my advice," Hughes said. "If I am fee-only, I have the obligation to recommend only what is appropriate to you, the client. And I am not persuaded by having to sell you a product to earn income."

There are several fee-only structures. Some advisors may charge an hourly fee or a flat fee for certain services. Others charge a percentage of whatever assets they manage for you. The average cost is 1 percent of assets, Fingerman said, noting this varies depending on the firm and the size of your assets.

Hughes is not fond of the percentage fee because she said it gives an advisor incentive to keep your money invested.

"That could mean that if you want to pay off your mortgage, an advisor paid by a percentage might be biased in favor of you keeping the money invested. Otherwise, they would take a pay cut if you cashed out that amount to pay off your home," Hughes said.

FINDING A PLANNER

Interview multiple advisors before you choose one. To get started, try some comprehensive online search tools.

For certified financial planners, check the Financial Planning Association's website at plannersearch.org. If you want a fee-only advisor, look to the National Association of Personal Financial Advisors (NAPFA) at napfa.org or the Fee Only Network at feeonlynetwork.com.

You may also turn to your family and friends for recommendations, but remember that you want to work with someone who has experience with people like you. If your brother-in-law is a construction worker and your aunt is a teacher, they may have planners who work well with their situations, but maybe not with yours.

Look for someone with small business experience. Better yet, look for planners with dentists or medical professionals as clients. Also, consider the person's knowledge in other areas, such as college planning, insurance or divorce, if those top your needs.

If after all that you are not sure who to go with, go with your gut.

"Assuming one advisor has the same years of experience, same designation, and is compensated the same way as the other, I would work with the one you liked better and felt more comfortable with," said Fingerman. "This could be a long-term relationship, and you want to like who you work with."

TOOLS TO CHECK OUT A PLANNER

Be sure to do some research to make sure the pro you're considering has a stellar record.

If the pro is a certified financial planner, you can help the CFP Board's website. You can also use the FINRA BrokerCheck tool and check in with the Securities and Exchange Commission.

Finally, Google the advisor's name. You never know what you might find.

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