Financial Planning: Where to Get Financial Advice
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Access to financial advice seems to be everywhere, Internet, magazines, TV, etc, but how do we get the best financial advice around while avoiding falling into the traps of an unscrupulous advisor? Let’s start by explaining what a financial planner does. A financial planner is an investment professional who evaluates the personal finances of an individual on short-term and long-term financial goals. Unlike specialists such as lawyers or tax preparers, a financial planner will analyze your entire financial picture such as taxes, investments, insurance, education goals, housing goals and retirement. Start your research by looking into self-regulatory organizations such as the Certified Financial Planner Board of Standards, here you can find board certified and recognized financial planners. If you are interested in planners who also sell insurance products, you can visit www.naic.org which is The National Association of Insurance Commissioners. The FINRA, Financial Industry Regulatory Authority is the largest independent regulator of securities brokers. Their website, www.finra.org offers a broker check tool where you can look up the professional background of a securities firm or broker. The information made available through BrokerCheck comes from the Central Registration Depository online registration and licensing database. It lists background professional information on about 660,000 currently registered brokers, 5,100 registered securities firms and thousands of previously registered firms and brokers.
There are a few questions you can ask planners when you are searching for the right one. For example, ask what kind of education, formal training or credentials they have, what licenses they hold and if they are registered with the Securities Exchange Commission (SEC), the state or the Financial Industry Regulatory Authority (FINRA). According to the SEC, an advisor that manages $25 million or more of client assets must be registered with the SEC and if they manage less than that, they must register with the state securities agency in the state where the business is located. Ask how long they’ve been practicing or whether they are licensed as an investment or life insurance broker. Depending on the type of advice you are looking for, knowing what financial products they are licensed in, will help you decide whom to choose. You can also ask them for references of some of the clients they have advised. Ask how they are compensated, if and how they earn commissions and by who. Another important question to ask is if they will be responsible for evaluating and updating your plan on a regular basis or if others will be involved such as other partners in the firm. Asking these and other questions in advance will help you narrow down the advisor you want to work on your financial plan and who you feel most comfortable with.
There are four ways financial planners earn their fees. Commission only planners make their money by the investment or insurance products they sell their clients. So the plan they outline for you is free, but any products you sign up for will cost you. A fee-based planner or broker charge upfront fees for services provided and a commission for securities traded or insurance products purchased by you. Fee-offset planners charge an annual or hourly fee, however if you buy any financial products from them, the commission earned on these products will be reduced from the fee. Fee-only planners charge only based on the services they offer. Their fees could be based on a percentage of the client’s annual assets or on a per-hour rate. These planners do not sell financial products and earn no commissions.
When looking for a planner, you can look at some of the professional organizations mentioned earlier or others like the Chartered Financial Consultant (ChFC , (PFS) Personal Financial Specialist, Accredited Financial Counselor (AFC) http://www.afcpe.org or Registered Investment Advisor (RIA). It’s important to do thorough research when selecting a financial advisor. The research will pay off when in 10 or 20 years we see our lifelong savings are intact and growing.
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5 Comments so far
leave a commentGo with a fee-only advisor. Insurance and securities brokers are salesman, not advisors. They suffer from major conflicts of interest, and do not have a fiduciary duty to their clients. Under FINRA’s rules a broker is only required to recommend “suitable” investments; these are generally the ones that make the most money for them (and thus the least for you) within an asset class.
How do I start my career in investment advisor and financial planning? I have been using Mint.com for about 2 years. I really love finances and investing. My parents tell me to stay in school and finish my education before looking for a real job in business
It sounds like you are of “regular” college-attending age. If you would like to start as a broker/advisor/financial planner at a major firm and probably most smaller firms, a Bachelor’s degree will be required. So, listen to your parents.
The major firms have programs where they pay you a salary for a year or two as you work to gain clients. Once that period is over, you are on commission-only. Other firms may pay you a draw – basically they are loaning you money that is to be paid back from commissions generated by your sales production.
Something I did that you may want to consider while in school: I joined a company called Primerica Financial Services while in college. It is an MLM/Network Marketing Company [i.e. direct selling]. So, it is very different in many ways from a traditional business structure. But, the sales aspect is the same regarding the actual products which are primarily term life insurance and mutual funds.
If you do this, you will learn about the industry. Also, you will gain an insurance license and you will gain Series 6 & 63 licenses. This will give you an edge over others when you obtain your Bachelor’s degree because the only other license you will need will be the Series 7 license to become a full-fledged broker.
Lastly, you will have the opportunity to earn money as an independent contractor. Who knows, if you do well enough, you may just stay at Primerica. The odds are most likely that that will not occur [check out the direct-selling industry's own statistics which show that the average Rep only recruits 2 people in their entire career and the average Rep only earns $2400 per year (before expenses)] . But, you never know.
Hi Scott,
Look at the website CFP.net, there you will learn everything you need to know about what credentials you’ll need in order to become a certified financial planner. It’s great to know that you love finances, that is a good thing and will take you far if you decide to pursue this career.
As far as what your parents tell you about finishing school, that is actually a good idea. If you finish college, you will have more opportunities available to you within this field. Also, to go for the CFP designation, you’ll need to complete a 4 year degree.
Give school a chance, believe me, it’ll be over before you know it. What you can do now is keep researching the cfp.net site and learn what you will need in order to meet the requirements. Also, get involved with volunteer programs where you can learn about financial counseling and maybe even start counseling some folks. Once you finish school you’ll be much more prepared than most!
Here are some sites you can look into:
http://www.cccsstl.org (Consumer Credit Counseling Services)
Volunteermatch.org (here you can search to see what is available in finances or business)
afcpe.org Association for Financial Counseling and Planning Education (AFCPE)
If you are looking to make some side money, search around for a part-time job that makes you happy and fits in with your school schedule or any other activities you may have.
Best of luck Scott!
Ana
Ana
I am a user of MINT and find it can be a great benefit for clients who have trouble keeping track of their expenses. As I a Certified Financial Planner professional who works for a firm that only charges by the hour, I was intrigued when I saw the title of your article about seeking financial advice and how to do it. You have done a great job of the search process and especially the questions that people should ask. I want people to ask me these questions and do their research because then when they make their selection they know that they have made the decision that best suits their circumstances.
Martin