Choosing a Financial Planner

Hire an Expert or Do It Yourself?

Many people are capable of doing the job themselves if they're willing to do some homework. There is a wealth of information available on the Internet, as well as excellent books, software, and self-help groups. If you have no interest in learning about starting an investment program, selecting individual stocks or mutual funds, or deciding on your asset allocation; if you don't want to take the time away from work, family, and other commitments; or if you're having trouble meeting your financial goals, then a financial planner may be for you.

Many people design their own financial road maps but confer with an advisor periodically about specific issues or life stages, such as leaving the workforce to retire.

Finding a Qualified Financial Planner

A financial planner will assess where you are financially and design a plan to help you meet your financial goals. A good planner should look at the big picture, taking into consideration accounting, investing, tax, and insurance issues.

Finding a qualified, objective financial planner may seem as challenging as actually doing the investment research yourself. Brokerage firms, banks, accountants, certified financial planners, and mutual fund companies are happy to offer advice and guidance at a price. Sifting through all of these options to choose a qualified planner you're comfortable with and that will look out for your interests will take some footwork, but don't make the mistake of trying to save time by picking an advisor from the phone book.

It helps to have an understanding of what the various titles mean, such as CPA, Certified Financial Planner, Registered Financial Consultant, etc.

Know what you want to obtain from a financial planner. This will be determined in part by the nature of your investments and other assets.

Know your risk tolerance level. Can you ride out the swings in the stock market and retain your sanity? Or will a down swing cause sleepless nights?

Shop for an advisor. One of the best ways is to ask family, friends, or co-workers for the names of advisors they've used and would recommend. Narrow your list to several top candidates.

Interview the candidates. Make sure up front that this initial consultation will be free of charge, and be prepared with a list of questions. It's important for you to feel comfortable with the financial advisor, and to make sure their investment philosophy matches your own.

If you have low risk tolerance and your main goal is to preserve capital, you wouldn't want an advisor who likes to invest in junk bonds and penny stocks. You can interview the candidates over the phone or in person, but you'll get better results in a face-to-face meeting. Either way, note whether the advisor listens to your description of your goals and level of risk tolerance, is responsive, seems knowledgeable, and appears to be honest and straightforward about the pros and cons of various types of investments.

Before choosing a financial planner, make sure you understand the various methods of charging fees, and that you're comfortable with method the planner uses. I recommend a planner who doesn't stand to profit personally by recommending a particular investment. If this is the type of planner you prefer, you'll want to look for a fee-only advisor.

Check the planner's credentials. Once you've narrowed your choices to one, do a background check: Make sure the planner is licensed by the federal or state government. Ask to see the planner's Form ADV. Your state's securities agency should have information on planners, including their Form ADV and CRD records for stockbrokers (North American Securities Administrators Association's Central Registration Depository).

Check professional associations such as the state bar association if the planner is a lawyer, or the state accountancy board if he or she is a Certified Public Accountant (CPA). Finally, call the Better Business Bureau to see if complaints have been filed against the planner. If this all seems like too much work, remember, you're entrusting your hard-earned money to this individual.

How Much Will It Cost?

Fees vary, but to give you some idea, Certified Financial Planners charge a median fee of $100 per hour; $700 for a comprehensive financial plan; $300 for a plan that covers a specific area, like retirement planning.

The cost to you will depend on the complexity of your investments and financial situation, as well as where you live and the fee method the planner uses. If you don't use a fee-only advisor, you will pay commissions, or a combination of fees and commissions.

See Page Two for useful links to search online for a fee-only advisor in your state, read about the pros and cons of the various fee methods, and find other types of financial planners in your state.

From the International Association of Registered Financial Professionals: