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What to look for in a financial planner?
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1st Nov 2009 by Amelia Timbers
Be careful when choosing a financial planner- you do not want to end up with Madoff II. Choose a financial planner like a doctor; you need to be able to trust them, but also understand what is going on. Follow these ten steps to get a financial planner you can trust.
1. Hold auditions for your business! Speak to at least four financial planners before deciding on one.
2. Be sure that they have the right education- either CFA (Certified Financial Advisor) or CFP (Certified Financial Planner) credentials. Visit http://www.cfp.net/ and http://www.cfainstitute.org/ to be sure that the professionals you are auditioning really hold the credentials they claim to, and that they are current. Do not be defrauded.
3. Next, be sure that they are unbiased. Make your first question to a potential planner how they earn their money. Is it a flat fee, a commission based on asses managed, or by recommending specific products? Avoid planners who earn money by recommending specific products. Would you want a doctor who made money every time the recommended cough medicine? No, especially if you come in with a broken arm; cough medicine won't help, but it's what you'll get. Similarly, you don't want a financial planner who is biased or benefits in any way from recommending one financial product over another.
4. In an initial meeting, a financial planner should try to get to know you. Every client's financial needs are different, so every financial plan should be too. If the financial planner skips the 'get to know you (and your financial situation)' stage, recommends any product before they get to know you, or has premade financial plans, politely end the meeting and move on to the next audition. You must find the planners who work with you from scratch to build your financial plan so that you get the plan that best meets your specific needs and maximizes your returns. Planners with prepared financial plans or who neglect to deeply understand your situation are lazy and reckless. Want a lazy or reckless doctor? No? Then you don't want that in a financial planner either.
5. Ask for references and call them. Ask for one reference from a former client- someone who ended their relationship with your potential financial planner. Find out how the experience was, if there were any problems, how the investments fared and why the former client left. If the financial planner does not have references or is offended by your requesting them, move on.
6. Do an informal background check. Do some internet investigation- run internet searches of the firm, the name of the planner you are working with, the phone number of the planner and their email address. Check the local public records (normally available in an online databank by state or county) for records of lawsuits involving the potential financial planner. If anything comes up in your research that makes you uncomfortable, move on.
7. Be an informed investor. All investors should be financially literate. Don't know what a junk bond is? Go to a local library, take out a basic finance textbook or take a class and get educated. Do not make any investments that you couldn't explain to your spouse or child in plain terms. A financial planner is not a substitute for personal financial literacy. Just like doctors don't take the pills for you, you should understand exactly what you are doing with your money.
9. Get a second opinion! Even when you settle on a financial planner, you should annually bring your portfolio for assessment by A DIFFERENT financial planner without telling the first one. These audits will help you get a feel for whether the larger financial community agrees with your planner. They should generally agree; finance isn't rocket science. If it ever gets that complicated, move on to a new planner.
10. If you are a personal investor and a financial planner ever offers you a product with a return above 20%, move on. The golden rule of finance: if it is too good to be true, it is. Don't get burned. Leave the complex products to people and institutions that can endure the risk of losing it all when it goes bad.
This advice will shake out at least 75% of the financial planners you will meet. And thank goodness! You are looking for the ones that can survive your scrutiny and really earn your trust- and your fees.
Be careful when choosing a financial planner- you do not want to end up with Madoff II. Choose a financial planner like a doctor; you need to be able to trust them, but also understand what is going on. Follow these ten steps to get a financial planner you can trust.
1. Hold auditions for your business! Speak to at least four financial planners before deciding on one.
2. Be sure that they have the right education- either CFA (Certified Financial Advisor) or CFP (Certified Financial Planner) credentials. Visit http://www.cfp.net/ and http://www.cfainstitute.org/ to be sure that the professionals you are auditioning really hold the credentials they claim to, and that they are current. Do not be defrauded.
3. Next, be sure that they are unbiased. Make your first question to a potential planner how they earn their money. Is it a flat fee, a commission based on asses managed, or by recommending specific products? Avoid planners who earn money by recommending specific products. Would you want a doctor who made money every time the recommended cough medicine? No, especially if you come in with a broken arm; cough medicine won't help, but it's what you'll get. Similarly, you don't want a financial planner who is biased or benefits in any way from recommending one financial product over another.
4. In an initial meeting, a financial planner should try to get to know you. Every client's financial needs are different, so every financial plan should be too. If the financial planner skips the 'get to know you (and your financial situation)' stage, recommends any product before they get to know you, or has premade financial plans, politely end the meeting and move on to the next audition. You must find the planners who work with you from scratch to build your financial plan so that you get the plan that best meets your specific needs and maximizes your returns. Planners with prepared financial plans or who neglect to deeply understand your situation are lazy and reckless. Want a lazy or reckless doctor? No? Then you don't want that in a financial planner either.
5. Ask for references and call them. Ask for one reference from a former client- someone who ended their relationship with your potential financial planner. Find out how the experience was, if there were any problems, how the investments fared and why the former client left. If the financial planner does not have references or is offended by your requesting them, move on.
6. Do an informal background check. Do some internet investigation- run internet searches of the firm, the name of the planner you are working with, the phone number of the planner and their email address. Check the local public records (normally available in an online databank by state or county) for records of lawsuits involving the potential financial planner. If anything comes up in your research that makes you uncomfortable, move on.
7. Be an informed investor. All investors should be financially literate. Don't know what a junk bond is? Go to a local library, take out a basic finance textbook or take a class and get educated. Do not make any investments that you couldn't explain to your spouse or child in plain terms. A financial planner is not a substitute for personal financial literacy. Just like doctors don't take the pills for you, you should understand exactly what you are doing with your money.
9. Get a second opinion! Even when you settle on a financial planner, you should annually bring your portfolio for assessment by A DIFFERENT financial planner without telling the first one. These audits will help you get a feel for whether the larger financial community agrees with your planner. They should generally agree; finance isn't rocket science. If it ever gets that complicated, move on to a new planner.
10. If you are a personal investor and a financial planner ever offers you a product with a return above 20%, move on. The golden rule of finance: if it is too good to be true, it is. Don't get burned. Leave the complex products to people and institutions that can endure the risk of losing it all when it goes bad.
This advice will shake out at least 75% of the financial planners you will meet. And thank goodness! You are looking for the ones that can survive your scrutiny and really earn your trust- and your fees.
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1st Nov 2009 In Investing
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Subjects: financial planner,