Financial Planning

6 Things You Must Know About Financial Planners

Picking an adviser is like choosing a mate. Find the right match.

1. You must first do some serious self-examination. Identify why you think you need a financial planner. Perhaps you’re going through a transition—say, you have a new baby or you’re recently divorced. Maybe you need to update your retirement plan or get a reality check on saving for college. Do you require frequent contact with your adviser, or are you okay with annual updates? What is your tolerance for risk?

SEE ALSO -- QUIZ: Do You Need a Financial Planner?

2. You must master the alphabet soup. If you’re looking for broad-based advice about various aspects of your financial life, hire a certified financial planner, or CFP. These professionals must pass an extensive, ten-hour exam and meet other education and ethics requirements to gain the credential. A registered investment adviser, or RIA, is registered with the Securities and Exchange Commission or a state securities regulator and can manage your investment portfolio. A chartered financial consultant (ChFC) specializes in insurance and estate planning. A certified public accountant (CPA) can help with tax planning.

3. A good man (or woman) is easy to find. We recommend fee-only advisers because they are unlikely to sell you inappropriate financial products. Many of them charge per visit; expect to pay $100 to $300 an hour. Some planners levy a yearly fee—commonly 1% to 2% of your assets. If you plan to take that route, you’ll likely need to meet a minimum asset requirement (typically $250,000). When you sit down for the initial interview, establish upfront how much you’ll pay. To find a certified financial planner in your area, go to the Financial Planning Association or the National Association of Personal Financial Advisors. The Garrett Planning Network is a network of fee-only advisers.

4. You need to make sure you’re on the same page. One way to ensure that your adviser’s interests align with yours is by asking the right questions. Some basic queries include: What can you offer me? Are you conservative or aggressive? What do I do if I have a question? Look for someone whose clients are in situations similar to yours and who is available as often as you need him.

5. Nobody’s perfect. An adviser who charges based on asset size may want to handle as much of your money as possible. That could mean, for example, that he might not advise you to pay off your mortgage, even if it makes sense for you to do so. Such conflicts may be unavoidable, but awareness will help you stay a step ahead. If you’re worried about pot­ential fraud, a quick Google search should unearth the worst abuses. For a deeper look, check out an adviser’s Form ADV. If the adviser is also a registered broker, you can get a free report from FINRA.org.

6. Breaking up is hard...and expensive. If your adviser isn’t listening to you or taking your goals into consideration, it’s time to split up. But unlinking your finances can be expensive; prepare to shell out termination and transfer fees. If it’s an amicable breakup, however, your old and new advisers can get together to make the transition smoother.

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