DO YOU NEED A FINANCIAL ADVISOR?
Many people who save money — whether for retirement, their children’s education, a second (or first) home, or for any reason — often do so in piecemeal fashion. Even relatively wealthy people who are able to save large sums of their income often put little thought into where their savings are going, or how they might diversify their investments so that they complement each other. Other savers might be “do it yourself” types, reasoning that a little Internet research and a few financial magazines will offer enough clues to put together an adequate financial plan — but never finding the time to follow up.
However, just as one wouldn’t want to perform surgery on oneself, one should not take one’s financial health lightly either. A small investment in professional assistance can go a long way in boosting your savings. Financial planning through a qualified advisor is becoming increasingly prevalent, among modest savers as well as wealthy ones, and the choices in seeking such help are abundant, sometimes confusingly so.
Finding a Trustworthy Financial Planner
How does one find a qualified, trustworthy financial planner? First of all, determine what your own needs are. Do you need a comprehensive financial plan, including advice on insurance and tax issues as well as estate planning? Do you just need someone to review a plan you’ve already put together, who can help tweak your plan or offer suggestions? Are you planning to open a business? Different financial planners have different areas of expertise, so be sure to find one who’s suitable for you.
Several websites list financial planners and their credentials. The website of the National Association of Personal Financial Advisors (NAPFA) is a good resource for locating planners in your area who operate on a fee-only (not commission) basis. The website of the Financial Planning Association (FPA) is another good search tool. And the U.S. Securities and Exchange Commission maintains an Investment Advisor Public Disclosure (IAPD) website, with information on financial planning firms as well as on individual advisors.
Credentials can sometimes be confusing; some require rigorous training to earn. Perhaps the most respected designation is CFP (Certified Financial Planner); earning this credential requires passing several exams, including ethics training, and requires three years of experience. A CPA (Certified Public Accountant) is a professional accountant, who can help with tax issues; “CPA/PFS” indicates a CPA who has undergone additional training in financial planning. A ChFC (Chartered Financial Consultant) is experienced in insurance matters, and a CRPC (Chartered Retirement Planning Counselor) specializes in retirement planning. There are many other designations that planners can obtain, and not all involve rigorous training; do your research.
Once you have identified a few possibilities, arrange to interview them. An introductory meeting should be at no cost to you, and should allow both you and the potential planner to determine whether the match is suitable. You must also be perfectly comfortable with your planner; he or she will become familiar with every aspect of your financial life (particularly if you require a comprehensive plan), so you should feel comfortable divulging this kind of information. Withholding information about your finances will not lead to a productive relationship, or a useful plan.
Financial Planner’s Fees
And — very important — find out how the planner is paid. Traditionally, financial planners have been paid at least partially on a commission basis — earning a commission on investment products that he or she sells to you. This is not always a bad thing, but you must trust that the planner is working in your best interest, not his own. Fee-based planning is becoming increasingly popular (whether an hourly rate, or a set fee to put together a comprehensive plan), and largely nullifies the conflict-of-interest issue. Some planners, particularly those whom you would hire on a long-term basis to manage your financial affairs, charge a fee based on a percentage of assets under management.
Be sure to clarify the fiduciary responsibility of your advisor: in general, U.S. law is interpreted such that an investment advisor is bound to provide full disclosure of all fees and any potential conflict of interest; to exercise discretion in suggesting investment products; and to act only with the client’s best interest in mind.
Another option may be the financial planning services offered by large investment houses, such as Vanguard or T. Rowe Price, or on-line brokerages such as Charles Schwab, particularly if you already have money invested through such companies. However, it is very important to determine exactly how these financial planners are paid; whether the financial products they offer are limited to their own funds only; and whether the planner assigned to you will have adequate time to cater to your needs. A large sum invested with an investment house or brokerage may come with some free advice, but such advice might be limited in scope.
A carefully considered financial plan should allow investors to pursue the lifestyle they want and allow them to enjoy their retirement, without fear of running out of money. A good planner should help you meet these goals.