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One of the first things you must discover is the financial planner's credentials and experience. You must not fall for the sales talk. You must look for integrity.
There are a number of financial service designations. Knowing some of the terminology is helpful. Here is a list of just five of over 50 used by the industry:
Certified Public Accountant (CPA) - A CPA is an experienced accountant who has met strict education and licensing requirements. A CPA will be a good choice for tax issues, but perhaps not for a financial plan.
Personal Financial Specialist (PFS) - This is a CPA who has undergone additional financial planning education together with additional experience requirements and has passed an exam. Then he/she may use the designation CPA/PFS.
Certified Financial Planner (CFP¨) - The CFP is one of the most respected financial planning designations. Before one can use it he/she must have a minimum of three years of experience, follow a strict code of ethics and pass a series of three exams. These individuals will be able to provide a broad range of financial advice.
Chartered Financial Consultant (ChFC) - These are typically insurance professionals who specialize in some aspects of financial planning by meeting additional education requirements in economics and investments.
Chartered Retirement Planning Counselor (CRPC) - A CRPC designation is offered through the College of Financial Planning to allow planners to specialize in retirement planning. These individuals must also pass an exam and meet a strict code of ethics.
Finding the right person is important. It is somewhat like finding a medical doctor. Actually this person will be your financial doctor.
One of the best ways to find a financial planner may be by talking to your family and friends. Your lawyer may have possible recommendations. Ask whether they know a financial planner and if they are happy with him/her. A recommendation for a trusted individual is usually very helpful.
You may receive several recommendations, so it is a good idea to meet with each before making a decision. You should be able to meet with and discuss your needs to determine if a financial planner has the ability to meet your specific needs. Do not hesitate to ask questions. Listen carefully to the answers.
Ask yourself if you feel comfortable with him/her. Will he/she listen to your needs or push you to do what he/she directs you to do? Is this the person you want helping you make financial decisions?
The person you select must be one in whom you have complete trust and confidence. You will have to feel comfortable discussing your financial needs, your expectations and the results. Both you and the financial planner must be truthful with each other.
What questions must you ask the financial planner? Most important is "How are you paid?" You must understand how you will be charged for their services. There are several methods. Following are just a few of the most common:
Commission - This has traditionally been the most common way financial professionals are compensated. What this means is that when you purchase an investment, a certain percentage of the total purchase will be deducted and a portion of that will go directly to your advisor. This is not necessarily a bad thing, but you have to be very careful that they are not forcing you into an investment just so they can make money.
Flat Fees - Another common method of compensation is through a flat fee. Some will charge a flat hourly rate or may charge a flat fee for putting together a comprehensive financial plan. Typically, there is little concern for a conflict of interest since they are getting paid whether you purchase any investments or not.
Fee Based on Assets - While not as common as the other two options, although becoming more popular, some planners charge an annual fee that is based on a percentage of the assets you have invested with them.
There are five good questions you may ask either before your visit on the phone or during a face to face visit. These are:
"What is your area of expertise?" Look for someone who will understand you. Are you about to retire? Does this person have the experience dealing with retirement? The planner should be experienced handling accounts of people of your age, your stage of life, and your asset level.
"How long have you been a financial advisor?" Previous experience in other fields may be helpful, but that is not what you are looking for. How long has he/she done what you need to have done? Generally you want someone with the education and professional background aligned with your needs.
Ask a hypothetical question about a type of asset, a question like, "What is a no-load mutual fund?" If you don't understand the answer, chances are this planner is speaking over your head. If you don't understand him/her answer to this type of question, you won't understand his/her financial advice.
You will want to know whether you will have sufficient funds to sustain you in your present standard of living. So ask, "Will you do a retirement planning projection for me." "What assumptions will be made to determine this plan?" "How much will my assets need to grow together with your expenses?"
"How are you compensated?" That was discussed above. Perhaps you could determine that whether the rate is flexible. Get a full explanation of charges and make sure you understand.
Unless you already have a financial planner with whom you are satisfied, you need a good financial planner. This person must have the necessary experience to handle your individual situation.
Please follow the above suggestions to find the right person for your needs. Good luck.
Note: The Bank of Sullivan has compiled the first 12 articles in this series into a booklet titled "Planning Ahead to Protect Your Estate." If you would like a copy, write to the Trust Department of the Bank of Sullivan at 328 E. South Service Road, Sullivan, MO 63080, and one will be mailed to you.
