Financial planning is a process that is tackled by many individual investors quite successfully on their own. But some individuals prefer to have someone else perform the task. The question then arises: How do you find a financial planner?
The selection of a financial planner is a very important and, sometimes, very difficult task. There is often a period of adjustment that one must go through, which involves a building of confidence in your adviser. In most cases, a financial planner is a central coordinator, a process facilitator, with respect to all of your financial concerns. The financial planner is a generalist who should help you quantify your financial objectives, compile recommendations for action after a review of your objectives and financial information with your other specialist advisers and see to it that various items are implemented in order to help you achieve your financial goals. In general, a financial planner has to know as much about your situation as you do if they are to represent your interests properly. Because of this intimate level of knowledge with respect to your financial affairs and personal objectives, your planner must be someone you can trust both as a competent adviser and as a caring individual.
The purpose of this article is to give you some guidelines to follow in selecting a financial planner to meet your specific needs.
Finding Names of Qualified Planners
Once you have made the decision to use a financial planner, you need to begin the ferreting-out process in order to narrow down your choices among the multitude of individuals out there who call themselves financial planners today. A good place to start would be with the various professional associations. The largest is the Financial Planning Association (FPA), based in Denver, Colorado, which was created in 2000 through the merger of the International Association for Financial Planning (IAFP) and the Institute for Certified Financial Planners (ICFP).
Here is a list of financial planning groups:
Financial Planning Association (FPA)
7535 E. Hampden Ave., Suite 600
Denver, CO 80231
The FPA is the principal professional organization for certified financial planner (CFP) professionals, educators, financial services providers and students. A certified financial planner is someone who has passed a series of exams testing broad knowledge in the areas of insurance, investments, retirement planning, income taxation, estate planning and overall financial planning. Upon successful completion, they are awarded the CFP designation and are required to complete 30 credit hours of continuing education (CE) every two years, including two hours of CFP Board-approved Ethics CE. The FPA PlannerSearch allows you to identify FPA CFP professional members who have created a profile (www.plannersearch.org).
Certified Financial Planner Board of Standards, Inc.
1425 K Street NW, Suite 800
Washington, DC 20005
The CFP Board grants the CFP certification. Its website provides financial planning tips and resources, including steps for creating a financial plan and how to choose a financial adviser. There is also an online search for finding a CFP professional in your area.
National Association of Personal Financial Advisors (NAPFA)
8700 W. Bryn Mawr Ave., Suite 700N
Chicago, IL 60631
The NAPFA website provides resources to assist you in finding a financial adviser. There is also an online search for NAPFA member financial planners who are near you.
These various associations will enable you to receive a list of financial planners in your area, whereupon the real weeding-out process begins.
When compiling a list of financial planners, another source may be referrals from friends. When receiving these referrals, make sure you ask your friends how long they have been working with the particular planner whom they are recommending. Many individuals are enthralled with the initial plan document and the organization that the financial planning process brings. However, continuing contact and monitoring of your financial plan is what really creates value for you in the long run. Many planners fall short of client expectations as the years pass; you would definitely prefer to have someone who has consistently performed for others and stood the test of time over a number of years. Also, ask your friends what types of services the planner has offered and performed to see if they are in conjunction with what you feel your needs are.
Narrowing the List
After contacting various associations and friends, you may have narrowed down your choice to three or four financial planners. At this point, you will want to sit down and write out the various questions that you would like to have answered by your planner. In addition, make a list of all the problems you would like him to help you solve and the various things you expect your planner to do for you. Have this list with you when you begin interviewing financial planners to see if you feel they can help you answer your questions and meet your various objectives. Remember, you have to know where you want to end up before you can begin the journey to get there.
Next, most planners will offer a free one-hour consultation, which is a feeling-out process for the financial planner and the client. You should take advantage of this opportunity and interview all the planners you are considering. In these planner interviews, there are a number of items, in addition to the obvious, that you will want to ask about:
- Ask the planner about his formal educational background and, if it does not seem to coordinate well with a career in financial planning, ask him why he chose to become a financial planner. If you feel his answer suggests that the main reason was to make a lot of money, steer away from that planner. This usually signifies someone who is more interested in his own welfare than yours.
- Ask whether the planner is active in the various associations or just a member. While this is not necessarily a requirement for a good planner, it does show a commitment to the industry and evidences the fact that he did not join the various associations just so he could say he is a member and list it on his resume.
- Ask about the makeup of the planner’s clientele. Here you will want to see that the planner is familiar with, and often working for, clients that have problems similar to your own. For example, a planner who tends to do a lot of retirement planning and works very often with retirees will be more familiar with the problems of the retiree and more adept at handling those types of cases. This could be one of the most important criteria of all in selecting your financial planner.
- Ask the planner for client references. Ask them to give you names of clients in situations similar to your own, preferably people they have worked with for at least three years. By adding these qualifying factors, you will be more likely to talk to clients who have worked with the planner for a number of years and who can speak of his consistency, and you also will be able to talk to individuals in situations similar to your own. In this case, you should ask for a minimum of three references. Although many individuals will find this information useful, please remember that no planner will give out the name of a client for whom he has not done a good job. In addition, you may find a planner who cannot give out names because many clients wish to keep their affairs private and may not want their planner using them as a reference.
- Ask the planner for a copy of his brochure and/or ADV form. The ADV is a form required by the U.S. Securities and Exchange Commission (SEC) from an investment adviser upon registration, and it must be updated at least annually. This form will disclose an extensive amount of information on the financial planner and his practice. The financial planner’s brochure is required to meet the brochure ruling according to the SEC. Essentially, it must include all the information that is in the ADV form, but the planner may put this information in a more legible format. When reviewing this form, you should look for the planner’s philosophies, practice structure, fees and potential conﬂicts of interest, all of which you should be aware. After reading this form or brochure, if something doesn’t feel right, your best bet is to walk away and try a different planner.
One last observation that you should make in your free interview is the planner’s questioning technique during the interview. If the planner spends a lot of time discussing your objectives and what is important to you, and covers all the areas of finance, they are probably a well-rounded planner who is interested in helping you solve your problems and achieving your objectives. A planner who spends most of the interview time talking about your financial statement, or just your insurance programs, is probably not a well-rounded planner and is more likely to be someone who is concerned with what he will get out of the client-planner relationship rather than what you will get out of it.
Don’t be afraid to take notes at this meeting. It is very easy to forget what happened in an interview and you will find your notes useful as you proceed through the winnowing-out process.
After all of your interviews are finished, you may wish to take all your notes, put them side by side, review each planner, and then make your selection. Or, you might feel it is necessary to call them to ask additional questions before you decide.
When Not to Use a Financial Planner
For many individuals, there will be times when a financial planner is not the appropriate adviser. Typically, a planner should be a well-rounded adviser, much like a general practitioner in the field of medicine. You would not typically have your general practitioner do a heart transplant if you needed one; however, you most likely would go to your general practitioner first when something bothered you in order to find out if you needed the actual heart transplant.
This analogy can apply to the financial services field. The financial planner should have the ability to look at your overall financial situation and determine what specialists, if any, are necessary in order to answer your specific questions and address your problems and objectives. If you feel you need assistance in putting all the pieces together so that you know what must be done in order to achieve your general objectives, a financial planner would be well worth the time, effort and expense. However, if you feel you have a very good handle on your overall situation and have very specific questions to which you would like answers while being comfortable with the other areas of your financial life, you may wish to go directly to a specialist who can handle that area for you.
A good recent example of this was the selection of the grandfather election for retirees according to the new law. A financial planner would be a good adviser to help you determine how your election impacts the other areas of your financial life. Yet the actual calculation and determination of the grandfather election and the specific numbers as they relate to the choosing of each different option would most likely best be done by a specialist in this area, usually a retirement plan administrator or actuary. These different options can then be taken to the planner to coordinate into your overall financial picture, or you could do this yourself if you feel comfortable with your level of knowledge and your ability to coordinate these matters into your own financial life.
This same analogy will hold true in many instances, and you can see from this discussion that the financial planner is really putting himself in the client’s position relative to these decisions. Specialists will always be needed in different areas in order to do the job right. There is no such thing as the Renaissance planner who knows everything about everything. Unless your case is very simple, specialists will always be needed. The decision to use a planner has more to do with your own level of comfort regarding your other personal financial matters and your ability to coordinate these toward the achievement of your objectives than the answering of a specific technical question.
In conclusion, choosing the right financial planner can be a very important step toward the ultimate achievement of your objectives. Choosing the wrong financial planner could be disastrous. Remember that you are talking about your financial life and, in this case, selecting a financial planner is like many other things in life: If it’s worth doing, it’s worth doing well. Take time in making your selection; do it right, and you will profit both financially and emotionally from a strong long-term relationship with a very useful financial adviser.
This is a revised version of an article written by Michael Leonetti, CFP, for the July 1989 issue of the AAII Journal. At the time, Leonetti was the president of Leonetti & Associates, a fee-only financial planning firm based in Buffalo Grove, Illinois. He is the author of “Retire Worry-Free: Financial Strategies for Tomorrow’s Independence,” published by Longman Financial Services.