Tips on Finding a Financial Planner

 

The effort and time you must put into the search for a financial planner is identical to the effort and time you must invest in finding a great family physician. You're looking for someone who you can trust and who will guide you in your financial health in the end. What should you do to begin your search? Based on the National Association of Securities Dealers (NASD) there are less than 69 financial qualifications that you could encounter. This article will assist you in narrowing your search prior to you call and call prospective planners.

Similar to a family doctor one of the most effective places to begin your search is to get referrals from family and friends. You can also inquire about the people they work with. The top planners can tell you that they have the majority of new clients through referrals. You can also utilize the internet to find planners near you. Some websites can be good sources of information. There is the Financial Planning Association (FPA) website lists the planners that are fee-only or commission-based. This website is for commission-based planners. National Association of Personal Financial Advisors (NAPFA) website only contains planners who follow a strict fee-only model of compensation. Three different compensation models will be discussed below.

When deciding on which kind of planner will best suit your family's financial needs, there are four aspects to think about the following: experience, credentials as well as how they're paid and what regulations standards they have to adhere.

Credentials

In all the certifications in the world of finance the most widely used are CFP CPA-PFS, CPA, ChFC and CFA.

1. Certified Financial Planner (CFP) - Awarded by the Certified Financial Planner Board of Standards also known as the CFP Board, to individuals who have met the CFP Board's education, exam qualifications, experience and ethics. Professionals who have earned the CFP certification should have vast understanding of the entire spectrum of financial planning. This includes estate planning, investments, pension planning, insurance, and taxes. The designation indicates that the individual has passed rigorous tests and has met the requirements.

2. CPA - Certified Public Accountant Personal Financial Specialist (CPA-PFS) CPAs are accountants who have more experience in tax-related issues. The PFS certification is conferred from the American Institute for Certified Public Accountants CPAs who have completed further training or hold the CFP or ChFC designation.

3. The Chartered Financial Consultant (ChFC) earned via The American College in Bryn Mawr, PA, and ChFCs have a tendency to work in the field of insurance. The professional who has earned the ChFC designation must have vast understanding of the various elements of planning for financial success including estate planning, investments as well as taxes and insurance. The ChFC designation signifies that the individual has passed rigorous tests and fulfilled certain standards.

4. Chartered Financial Analyst (CFA) - Awarded by the CFA Institute to financial analysts who pass three exams covering economics financial accounting securities analysis, portfolio management and ethics. CFAs have a higher likelihood be employed by mutual fund companies, institutions asset management companies as well as pension funds. CFA chartered members are obligatory to pledge their loyalty to ethical standards of the highest quality.

Experience

With the upcoming influx of baby boomers aging and retiring The financial planning field has been a second-career option for many planners currently. It is essential to think about this when interviewing potential planners. It is ideal that the planner is in the business for at least five or ten years , and has a degree in the field. The number of colleges providing degrees for Personal Financial Planning and Counseling has grown exponentially over the past decade. The most popular programs currently is just down to Lubbock, TX at Texas Tech.

Compensation

Knowing how and what the compensation of a planner is an essential aspect of setting up the relationship. Make sure you consider whether a planner's compensation obligations could affect their impartiality in your financial strategy.

There are three common classifications of compensation that a planner can fall under three categories: fee-based, commission-based or fee-only.

1. Commission Based- Planners who fall into this category make their money through commissions earned from sales of items, like bonds, stocks mutual funds, stocks, and insurance. Certain advisors who are commission-based affiliated with brokerage or banks firms might have sales quotas to meet in order to continue their jobs. The products they recommend might not be the right choice for you. If the planner receives by commission, it doesn't necessarily mean that they aren't taking care of the best interest of you. However, the risk of conflict of interest is higher.

2. Fee-based Planners in this class typically receive compensations based on a fixed fee or percentage of the money under management. They also receive commissions for sales of certain products like bonds, stocks mutual funds, insurance.

3. Fee-Only Planners who belong to this category don't sell commission-based products instead, charging an agreed-upon flat rate or a percentage of the assets under management. It is believed that the removal of any incentive to purchase or sell a specific investment for a client eliminates conflicts of interest. The planner's recommendations are according to what is the best for the client rather than the planner.

Which model of compensation is the most effective? I'm going to guess that the planners in each class will have a reason on why their model is more beneficial in the eyes of their clientele. At the end of the day you should be happy with how the planner you choose to work with is paid however, you must be aware of how much they're paid for every recommendation they give. If they are unable to provide this information to you just ask them! If they regard you as clients, they'll be more than happy to provide the information.

Standards for Regulatory Standards

Financial planners are bound by one of two standards for their clients. The two requirements include "suitability" as well as "fiduciary".

Brokers, also referred to as registered representatives are often referred to as financial planners, however they are actually employees of a member of a stock exchange firm that acts as accounts executives on behalf of their customers. They fall under the supervision of the autonomous Financial Industry Regulatory Authority (or FINRA) and are subject to a lesser "suitability" standards. That means that their recommendations have to have to be "suitable" with respect to the client (e.g. match clients' risk tolerance as well as the long-term objectives). So, a broker can be legally allowed to suggest an investment that will pay his company (and himself) an amount that is higher than the same fund with a lower cost as long it is appropriate to the particular situation of the client.

Contrary to that planners that are who are held to the "fiduciary" standard cannot perform this. If they are held to a fiduciary standard , the planner, under the law, must put the interests of the client first. CFPs as well as Registered Investment Advisors (RIA) are held to a strict standard of fiduciary duty. (Registered Financial Advisors just planners that are not employed by, or have any relationship with brokerage firms or financial institutions, and are required to be registered at authorities such as the U.S. Securities and Exchange Commission and/or state regulators.)

If you're comfortable with the fact that your planner will not be subject to a fiduciary standard be sure to inquire about the reasoning behind their suggestions as well as what's in it they are not able to meet the requirements.