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.