By Carey Rossi on January 2, 2013 in
A few years ago, I had a good friend who was drowning in debt. As an exteme measure, she put her credit cards in a container of water and placed it in the freezer. She was moving to a cash-only system and a drawer wouldn't be enough to contain them. If she felt the need to use her credit cards then she would have to think long and hard during the thaw.
It definitely was a creative plan to get her finances in order and it did help for a bit. However, there were other aspects like retirement and saving that weren't taken into account.
As we embark on 2013, getting our financial house in order could be on your resolution list. A financial planner might be someone you want to turn to for help. However, this needs to be a cautious endeavor. According to a 2009 survey of certified financial planners that's part of the CFP Board of Standards Self Defense Guide, 60 percent knew a consumer who had experienced fraud or abuse by another advisor. Yikes! What's more: Anyone can call themselves a planner.
If you still want to hire someone to help get your finances in order, use this guide to help you find a reputable one.
1. Know yourself. What do you want to accomplish financially? And what kind of help will you need to get there? (Besides a large influx of cash.) Besides these basic things, identify your assets and liabilities, your risk tolerance and your investment style. Do you need someone to hold your hand or would you like a partner to help you weigh your options? Being able to identify these things will help you find the right financial planner. It will give you the confidence to say no to services and products that you may be asked to buy (more on this later) and see past glossy promises.
2. Talk to friends and family, but don't stop there. Referrals from those you hold near and dear are a good place to start. But if your needs don't match your Aunt Bell's then her planner may not be the one for you. Groups like the Certified Financial Planner Board of Standards and the Financial Planning Association websites have resources that can help you locate a few candidates. Ultimately, experts suggest interviewing at least three potential candidates.
3. Interview your candidates in person. By meeting your potential planner in person, you'll get to use your fifth sense: your gut check. Besides asking them questions about the services they offer, make sure you:
Inquire about his or her credentials. Make sure that the planner you are speaking with has earned credentials, such as a Certified Financial Planner or Personal Financial Specialist designation. You will also want to check with the state or accrediting group to see if his or her record is free from disciplinary problems or complaints. Here's a cheat sheet to who regulates whom:
- Brokers are regulated by FINRA.
- Investment advisors by either the SEC or a state securities regulator.
- Insurance agents by the state insurance commission in states in which they do business.
- Certified financial planners professionals by CFP Board.
In addition, you should do a background check on your potential planner since this person will be handling your money.
Answer questions. A financial planner can only do right by you if they know you. He or she should be asking you lots of questions about your finances, your goals, your risk tolerance and your financial philosophy. If not, then he or she probably isn't the right person.
Ask how your planner is being paid. Here's the sneaky thing about financial planners--some sell products and services and get commission. But unless you ask, you might not know. Here are the most common ways that financial planners are paid according to the Financial Planning Association:
- Fee-only: All compensation is from his or her client work and comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees.
- Commission-only: There is no charge for the planner's advice or preparation of a financial plan. Compensation is received solely from the sale of financial products you agree to purchase in order to implement financial planning recommendations.
- Combination Fee/Commission: A fee is charged for consultation, advice and financial plan preparation on an hourly, project or percentage basis. In addition, the planner may receive commissions from the sale of recommended products used to implement your plan.
- Salary: Some planners work on a salary and bonus basis for financial services firms.
In addition, the Financial Planning Association suggests that you should request information on any real or potential conflicts of interest as well as whether there are outside incentives or bonuses (in addition to commission) to be gained by the planner for certain recommendations.
4. Do some more reading and homework. The Certified Financial Planner Board of Standards has a great guide to safeguarding your investments. You can get a copy of their "Guide to Financial Self-Defense" here.
It is your money. Putting the resources--time, effort and investment--into finding the right financial professional for you will be worth it. Ultimately, you don't want to be frozen out of financial stability.
