How to Choose a Finanacial Planner

There are times when you may want to use a financial planner, rather than handling finances yourself. No one can say when you really need some help with finances, but some situations can be complicated, such as coming into a large inheritance or managing multiple real estate properties. Some people just become overwhelmed at the number of financial options available and want someone to steer them in the right direction. As with many types of professionals, finding a good financial planner takes some good old-fashioned research.

A great way to select a financial planner to work with is by getting a referral through word-of-mouth. For example, those working in the finance industry, such as your accountant, could know some planners that could help you. You can also check with your friends and family to see if they can recommend a certain financial planner for you. By getting referrals first hand from people that you know, you are likely to get some good recommendations, before looking for a planner yourself in business directories or online.

Understanding Professional Designations.

There are many different acronyms used to designate professional certifications in the financial services industry. Having an understanding of them will be a great help in finding out about the financial planner you are planning on hiring.

Here are some of the most common designations used:

  • CPA – Certified Public Accountant – A CPA is an accountant that has been subject to one of the strictest licensing and knowledge requirements in the industry. Many CPA’s have years of experience and are especially knowledgeable on issues pertaining to taxes.
  • PFS – Personal Financial Specialist – Accountants who have earned the CPA designation can opt to undergo more specific education on financial planning. They are required to have a certain number of years of experience in addition to passing a PFS exam.
  • CFP – Certified Financial Planner – CFPs are able to provide wider range of financial advice and are required to have at least 3 years of experience in financial planning, pass a series of exams and follow a code of ethics that is very strict.
  • ChFC – Chartered Financial Consultant – Most ChFC are insurance professionals. They specialize in certain aspects of financial planning and have met additional knowledge requirements.
  • CRPC – Chartered Retirement Planning Counselor – These planners specialize in helping individuals plan for their retirement. CRPCs follow a strict code of ethics and have passed additional examination from the College of Financial Planning.

While these are some of the most common designations that are currently in use, you should note that there are more than 50 professional designations in the industry. Some financial planners could have none, while others could hold multiple ones.

Meet With Prospective Planners.

After you have found a selection of planners that appear to meet your needs, it is time to interview them. All reputable financial planners will agree to hold a first meeting at no charge. This is beneficial to both parties. You will have the opportunity to explain your needs and ask for clarifications on things that you are unsure of, and the planner can judge whether they are the right person to help you.

Find Out How Your Planner Will Be Paid.

Financial planners earn money in a few different ways. Knowing how your planner is compensated in very important, as you want to deal with a person who has what’s best for you in mind and is not just interested in making sales to earn money for themselves.

Here are the ways financial planners are compensated:

  • On commission – This is the most common compensation model for finance professionals. Whenever one of their clients purchases an investment, a predetermined percentage of the purchase price is deducted and paid to them. While this does not necessarily mean a conflict of interest, you should carefully check the reputation of the planner to make sure they are not simply recommending investments that will make them the most commissions.
  • By flat fee – This is also a common compensation method in the industry. Some planners charge you by the hour or a flat rate to put together a complete financial plan for you. This reduces the possibility of conflicts of interest, as the planner will be paid regardless of whether you buy any investments.
  • Fee based on amount of assets – This option is not nearly as common as the other two, but it is becoming increasingly popular. Some planners will charge their clients an annual fee that is a percentage of the total assets which they have invested through them.

Once you have done your research, choosing a planner will be much easier and less confusing. Having someone else helping you manage your money will help you look to the future with confidence.