6 Easy Steps to Finding the Best Financial Planner

6 Easy Steps to Finding the Best Financial Planner
GUIDE
Stefanie O'Connell
By: Stefanie O'Connell
Posted: June 24, 2014
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You should be doing the same level of research and due diligence when searching for a financial planner as you would for other major purchases like cars or homes.

After all, when choosing a financial advisor, you are essentially hiring the CFO of your household, the person in charge of helping you sustain and grow your money.

Here are some simple steps that’ll lead you to your best money management match.

1. Define what you want

Define what you want

Do you just need someone to manage your investments, or do you want an adviser to counsel you in all aspects of financial planning, from building your retirement portfolio to tackling specific, short-term financial goals like buying a home?

Define what you need and expect from you adviser and research planners who offer services that suit those desires.

Also be aware different planners have different kinds of expertise. If you’re just starting out, you may not want to hire a planner who specializes in estate planning and soon-to-be retirees.

Find an experienced planner who’s worked with clientele in circumstances similar to your own.

2. Understand the fee structure

Understand the fee structure

An honest adviser should willingly and clearly explain all fees. :There are two basic compensation models for advisers: commission-based and fee-based.

  • A commission-based adviser gets paid when buying or selling a stock or another form of an investment on behalf of a client. These advisers might have a bias since they profit from advising you to chose particular products.
  • Fee-based planners only make money when you pay them for their counsel — they don’t get a cut from the fund companies or insurers, thus they are more likely to have your best interests at heart.

The National Association of Personal Financial Advisers has a fairly comprehensive database of fee-only planners.

3. Determine their standards – fiduciary or suitability?

Determine their standards - fiduciary or suitability?

Once you’ve determined the adviser’s offered services, expertise and fee structure, there are two more important questions.

First, what standard of compliance does your adviser adhere to — fiduciary or suitability?

The fiduciary standard of compliance means advisers are legally bound to do what’s best for you and put you first in their planning and selection, whereas planners who use the suitability standard are required to provide products that are “suitable” but are not necessarily the best for you.

Second, you’ll want to know what licenses your adviser holds. Check the letters listed after their name on business cards, websites and emails.

The Certified Financial Planner (CFP) certification has rigorous qualification standards that require an exam, practical experience and continuing education on finances and ethics to maintain the certification. Those three letters are a good indication that a prospective planner will give sound financial advice.

4. Check their background

Check their background

In addition to making sure your future financial adviser is not a criminal, you’ll want to make sure those letters following their name on the business card aren’t just for show.

Verify all credentials and check for a clean compliance background — if your potential adviser is under the purview of the Financial Industry Regulatory Authority (FINRA), you can use the authority’s BrokerCheck feature to see any complaints on file. If your adviser falls under the jurisdiction of the Securities and Exchange Commission (SEC), you can check their website for more information.

It’s important to review your financial planner’s standing with the proper organization as part of your due diligence process.

5. Avoid fraud

Avoid fraud

To avoid becoming a victim of fraud, make sure your assets are held by a third-party custodian and not the actual planner.

Having the buffer of a third party custodian ensures the adviser never directly handles your checks, deposits or withdrawals, reducing the opportunity for fraud.

6. Trust your gut

Trust your gut

At the end of the day, you are hiring your financial adviser to serve you. If you don’t get a good vibe, or if you find your adviser to be pushy, condescending or over-promising, trust your instincts and shop elsewhere.


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