“A goal without a plan is just a wish.” 

Antoine de Saint-Exupery, The Little Prince

 

“When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps.” 

Confucius

When you are seeking a financial professional, you may be confused by your choices. Many professionals help you with planning when giving you financial advice, whether making investment recommendations for your portfolio or providing tax-efficient savings.

“Financial planner” or “financial advisor” are terms often used interchangeably. They may provide similar financial planning services. However, their level of education, certifications, designations, and standards may be quite different. This post discusses how to choose a financial advisor that is right for you.

The Main Differences When Seeking A Financial Advisor

 

1. Type of Personal Financial Services You Are Looking For

You may be looking for someone to advise you for a single purpose like debt management or a comprehensive plan. Here, we will focus on how to choose a financial advisor or planner. This type of advisor can handle various services (discussed below) to guide you towards your goals strategically. At the end of this article, you should be able to hire a financial advisor.

You may turn to accountants and attorneys for setting up a new business, debt management, bankruptcy, taxes, and estate planning.

2. The Fee Structure

Generally, your fees range from the fee-based only, commission-based, flat fee, or a blend of fees and commissions. However, there may be extra costs for additional services such as insurance.

3. Education, Certification, and Designation Requirements Vary

Financial advisors or planners have a bachelor’s degree with an accounting or finance focus as the minimum requirement. Advanced educational degrees are not uncommon. Their course of study distinguishes certified financial planners (CFPs), with a rigorous exam, required experience, and high standards.

Consider your candidate’s soft skills such as adaptability, communication, and problem-solving and if you have good chemistry. We have a list of questions below you should ask your candidate when choosing your financial advisor.

 4. How They Are Regulated

Different regulators play a role according to the primary designation. Regulation of financial planners may be according to their professional title. Planners with CFP credentials are subject to the requirements of the Certified Financial Board of Standards.

The Securities Exchange Commission (SEC) and the state where they do business regulates investment advisors who provide financial planning.

The  State Board of Accountancy regulates the accountant preparing a financial plan.

Key Financial Services

 

1. Money and Debt Management

Consider a money coach or credit counselor when you need help saving money, setting up a budget, reducing expenses, and debt management. You can often get free assistance from a certified credit counselor by searching on the nfcc.org website.

Accredited financial counselors or AFCs can aid you in money management through their organization 

 

Related Post: How To Pay Down Your Debt For Better Financial Health

2. Investment Advice and Trades

Investment advisers and brokers provide all manner of investment services, from do-it-yourself online trading to full-scale investment advice and money management. Generally, investment advisors and broker-dealers need to register with the SEC and the Financial Industry Regulatory Authority (FINRA), and state regulators. They are subject to the suitability standard, less demanding than the fiduciary duty.

A Registered Investment Advisor (RIA) advises high-net-worth individuals on their investments and manages their portfolios. They have a fiduciary duty to their clients, which means they provide investment advice by acting in their clients’ best interests.

3. Financial Planning

Financial planners are financial advisors who provide clients with a range of personal financial services. They can help you create a simple one-time financial plan if you are just starting, grapple with a specific financial objective, or provide a comprehensive goal-based plan. The latter may encompass savings, investments, college savings, insurance, retirement, tax planning, and estate planning.

Each plan should be tailored to your needs and provide a disciplined approach to achieve your financial goals. Financial planners will want to gather data from your personal and financial life and make forecasts to achieve wealth. Hiring a financial planner is a good starting point when you are in the early stages of accumulating assets or already have substantial assets but need guidance in their complex financial situation.

A core financial plan includes:

Cash flow management will look at the specifics of your current and projected budget and net worth, debt management, creating an emergency fund, savings for a house, vacations, college tuition, and retirement.

Risk management will consider life, disability, and medical insurance protection for you and your family.

Wealth management will address investments, diversification, risk tolerance, and asset allocation.

Related Post: 10 Tips To Diversify Your Investments

Tax and retirement planning should provide strategies to minimize your tax burden using capital gains strategies, charitable giving, tax-free and tax-deferred retirement savings. Advisors should speak with their clients about what kind of lifestyle they expect for their retirement years.

Estate planning involves questions about wealth transfer to loved ones most appropriately and efficiently.

Related Post: Your Guide To Basic Estate Planning

This Designation Is Preferable

Certified Financial Planners, or CFPs, have an essential designation issued by the Certified Financial Planner Board of Standards. This designation is difficult to obtain. It requires passing rigorous exam testing in specific personal finance areas. The CFP certification is distinct from CFAs, also or certified financial analysts who are highly respected in the investment analysis field.

CFPs must commit to continuing education on financial and ethical matters. They need at least three years of experience and must adhere to pretty stringent standards to earn and maintain their title. Before hiring a financial planner, you should verify the status of anyone claiming to be a CFP and whether he/she has undergone a disciplinary process.

When choosing a financial planner, CFP credentials may provide added comfort and confidence in your choice. However, it is not a guarantee of excellent performance. You want to pick the right financial advisor or team with the right fit for your needs.

Look For A Fiduciary

At a minimum, you want planners who are experts, professional and trustworthy. You should pick your planner who adheres to the fiduciary standard. The fiduciary standard is a higher standard requiring the planner or investment adviser to act in the best interests of their clients at all times.

Fiduciary duty standard is the highest standard of care referring to the financial professional.  A fiduciary is someone who holds a legal and ethical relationship with clients. They manage people’s money in their clients’ best interests rather than in their interests.

Registered Investment Advisors or RIAs help you manage your assets, mainly by way of your investment portfolio. These professionals are knowledgeable about market patterns, investing in stocks, mutual funds, and other securities. They are fiduciaries making similar recommendations to a CFP. Their pay structure is fee-based but earns commissions from the sale of financial products. CFAs or chartered financial analysts are highly respected in the investment analysis field, distinct from financial advisors.  

Don’t Paint Advisors With A Broad Brush

Investment advisers and brokers who work for broker-dealers and offer investment advice are primarily commission-based. They may have obtained CFP credentials through the hard work required.

From my experience, you cannot paint these individuals with a broad brush. Many are product salespeople interested in selling the latest service from their firm, yielding commission dollars. Other advisors are problem-solvers for their clients, helping them to manage their assets as a business. If you are fortunate to find one of these value-added professionals, grab them.

In contrast to the stricter fiduciary standard, FINRA requires the suitability standard for financial professionals who work for broker-dealers. Suitability is a lower standard than the fiduciary standard, which means the financial professional should only make recommendations suitable for their clients. A recommendation doesn’t have to be consistent with the individual’s objectives and profile.  For example, buying risky securities would not be suitable for retirees.

Financial Planners With Specialities

You may be seeking a financial planner for a specific goal like buying a house, retirement planning, or estate planning. Some planners specialize in particular areas such as addressing families with special needs, women executives or planning for single people.

Related Post: 10 Ways For Women To A Financial Independence

Look For Fee-Based Only Planners

The pay structure differs for different financial professionals from fee-based-only or charging flat fee, commission-based only, or a blend. When you want to develop a financial plan, I recommend seeking a fee-based adviser with more incentives to help with your financial goals. Fee-based structures can be fees by the hour, a flat fee for your plan, or a percentage of your annual assets.

Hourly rates may be in the $100-$400, with one-time financial plan costs of $1000-$3000+, and annual fees of percentages ranging 1%-2% of assets under management (AUM). Finding a planner that charges a flat rate or by the hour is best for those just starting to make money, who want a simple financial plan, and don’t yet have many assets.

Alternatively, you may want to consider Robo-advisors, such as Betterment, Wealthfront, Vanguard Personal Advisor Services, and  Schwab Intelligent Portfolios. Robo-advisors are an excellent option for those seeking low-cost financial advice and zero account minimum.

These providers have a range of investment and retirement planning services, digital planning tools and may provide access to human financial advisors. Their management fees vary from 0.25%-0.50% or flat annual fees. Some people prefer a human financial advisor for a specific part of their financial plan and several Robo-advisors offer blended services for a higher fee.

It Depends On Your Needs

You may be seeking a one-time financial plan after getting a sizable bonus or an inheritance. Others want to have a planning team to be able to work with them on an ongoing basis. There are a plethora of financial strategies to handle for a family moving through changing life cycles.

Trustworthy financial planners can help you build wealth with a disciplined approach. They may help you alleviate the financial stresses that you encounter when saving for a house, college tuition, insurance, and retirement using the most tax-efficient strategies.

When you have a busy career earning a high income, it may be challenging to wrestle with these personal finance specifics. Paying $10,000-$20,000 annually on a $1-$2 million portfolio that may produce savings isn’t bad.

Many traditional financial planners require a minimum of assets to invest, usually in the $250,000 range or significantly higher, and may not work with you. Other planners may prefer to grow with beginner clients to add a lot of value, particularly as clients have expanding family needs.

Where To Find The Right Financial Planner

The National Association of Personal Financial Advisors (NAPFA)  are fee-only planners who adhere to the fiduciary standard. They accept no commission-based planners. Their standards are high and generally meet or exceed the requirements needed for CFP credentials. Ask your friends and colleagues if they would recommend someone to you.

If you are just starting with fewer initial planning needs, you may consider the Garrett Planning Network. They are certified financial planners or persons working towards obtaining their credentials. They tend to focus on smaller projects for an hourly fee.

XY Planning Network is relatively new, focusing on young professionals looking for fee-based financial planners with the CFP designation. Their organization serves Generation X and Millennials. Their fees appear to be within the ranges of hourly rates or flat fees.

There are great Facebook Groups to visit, such as Females And Finance, run by Sheryl Hickerson, to help you find the right person for you. Women, in particular, have distinct needs for financial planning.

Do I Need A Financial Planner?

You can develop a simple financial plan on your own as you are starting. Even if you do not work with a financial planner, you need to consider your short-term and long-term goals. Managing money well is time-consuming and requires expertise in many areas.

As your assets grow, you may need guidance and assistance in developing financial strategies.

 10 Questions You Should You Ask When Seeking A Financial Advisor

Professional Caliber

  1. What are your qualifications, credentials, and experience?

You will want to know who you are dealing with in terms of expertise, education, certifications, and experience.

  1. Do you work with a team, and how do you work together?

Financial planners often have their specialties and overlap with others who can complement their skills.

  1. Are you a fiduciary?

A fiduciary standard is a more stringent duty of care. When speaking to a professional financial candidate, you want to understand how they view their role to you. It is your money and your financial future. You want your advisor to be working on behalf of your best interests, not theirs.

What Does This Cost

  1. What are your fees, and what are my costs all-in?

Understand their fee structure. Be clear about the extra costs you may incur, such as buying an insurance policy.

  1. How will I be communicating with you and your team?

Biannual plan reviews are common. How often will they be reviewing your financial plan with you?  If you will have an ongoing relationship with your financial planner, it is essential to understand how you will review and update your plan. What kind of communication should you expect, particularly when you are making changes.

  1. How will they work with you?

Will they take the time and have the patience to explain complex concepts to you. This information does matter, and it may take time to build confidence and a good rapport.

Characteristics of Your Financial Planners

  1. What is your investment philosophy? You want to understand your planners’ fundamental beliefs regarding growth and value investing. Markets can be turbulent, so you need to know how they may address investments during recessions.
  2. How should I measure success in our financial plan?

You need to understand the benchmarks that will provide you with results relative to your financial goals. There may be different measurements for various aspects of your plan.

  1. What added value may I expect from you as our financial advisor?

This question is tricky. Of course, you should expect expertise, professionalism, and trust. You want to know what kind of relationship you will have. When you want to make an investment that advisors believe is not a sound one, will they tell you “No”? They must have your back.

  1. What are some of the criticisms your clients say about you and your team?

No one person is perfect, so knowing those criticisms will help you measure your prospective financial planner and how he/she fits with your needs.

Final Thoughts

Prudent financial planning is vital to achieve your short- and long-term goals and to support your family values. We outlined the characteristics of a financial planner or advisor, the varying fee structure, and how to pick the right financial advisor for you.

What are you looking for when seeking out a financial advisor? What traits are essential to you? We would like to hear from you!

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