How To Choose A Financial Planner - Yes You!
I don't care who you are. (Well, actually I do, otherwise I wouldn't be writing this).
What I mean, is I don't care about your background, education, financial prowess, or absolute lack thereof.
You need a Financial Planner!
Pursuant to Julie's article on Personal Financial Advisors Awaiting Your Call, there are a number of different credentials, titles, creeds, and pay-scales that flood the financial services industry and can confuse the heck out of the average bear.
In fact, even the idea of seeing a Financial Planner may be so daunting (or embarrasing?) that you find ways and excuses to avoid it altogether. Here are a few things to think about in your search, or to compel you to search depending on your current position.
1 - Everybody needs a Financial Planner. I feel very strongly about this one. I don't care if you have $70,000 in debts and $5 to your name (I actually had a client like this once), or the other way around. A Financial Planner is more than a money manager, and everybody can benefit from their services. And the younger you are when you start to take control of your finances with the help of a planner, the better off you will be in the long run.
2 - Call them what you will. I'm calling them Financial Planners here, but they can be Financial Advisors, Investment Advisors, Personal Bankers, etc. Technically anybody can hang a shingle out tomorrow calling themselves a Financial Planner. The trick is…
3 - What are their credentials? As Julie mentions, there are any number of letters and credentials and titles that people can carry. The hallmark for Financial Planning is the CFP (Certified Financial Planner) designation, which is internationally recognized, the requirements of which entail years of education in addition to extensive work experience.
4 - Where do they work? Check out the company the Planner in front of you is representing. Are they a major player in the industry, or a ma-and-pa shop? Some people don't mind ma-and-pa, some do. Are they limited to proprietary investments, or can they recommend what is truly best for you? A large firm generally lends some credibility to the Planner, although this isn't a sure and fast rule. Ask your friends & family who they use; most often referrals work wonderfully.
5 - What can I expect? True financial planning isn't investment management. It isn't banking or loan services. It isn't insurance. And it isn't taxes. It's everything. A real Financial Planner is going to take a personal approach to your financial situation. They should sit down with you and analyze your entire financial situation. Income, expenses, assets, liabilities, insurance, and even some of the intangibles like your personal approach and attitudes towards money. They should be interested in what you want to accomplish with your life, what major purchases you have in your future, what sorts of vacations you like to take, and how you envision your retirement years. They also need to know your personal tolerance for risk and fluctuation in your investments, and should coach you on it. If they don't do all these things, they can't properly advise you!
6 - Won't this cost a ton? Financial Planning actually doesn't have to cost you a penny out of your pocket, depending on the planner and where you go for your services. Many banks have a team of Financial Planners who are available to help the bank's clients. They are paid a salary by the bank, and often don't cost you a thing. You can also choose asset-based advisors who again, you won't have to pay for out of pocket, but who are only compensated by their employer based on the money you invest with them. Believe it or not this doesn't mean that you necessarily need a ton of money to invest; many of these advisors want long-term relationships and believe they can help you over the long run and will ultimately be compensated for it. And of course, there are also fee-based planners and those with other methods of compensation, which go beyond the scope of this article.
7 - Who is best for me? What you need to look for in a planner is somebody you like first and foremost. If you're going to share details about your financial life and dreams and expectations, you need to feel comfortable opening up to them and establishing a relationship of trust.
8 - Can't I do all this on my own? There are a ton of solutions out there on the internet. My response to that is: Do you have a life? The job of a Financial Planner is a full-time gig. They know a lot and need to stay up-to-date in the ever-changing world of finance. If you keep up with all the latest tax legislations, investment regulations, and insurance opportunities and lingo, then be my guest and give it a whirl. What you'll still be missing is a third party perspective, and possibly some creative strategies that you (or your research) didn't think of.
In addition, I believe in delegation, and the fact that time is money. You defer your legal matters to your lawyer, and tax matters to your accountant. You defer your medical matters to your doctor. You don't perform surgery based on an internet program's recommendation, do you? And if you are still asking why you can't just do it on your own, please refer to point 5 again. I've yet to find a financial planning program that is intuitive enough to do all that.
Your time outside of work is better spent enjoying life, spending time with your family, and chasing down dreams. Not toiling over your finances in a hap-hazard way. Really.