Archive for the ‘How to Select Advisors’ Category

If you’ve never met with a financial planner before or if it’s been years since you’ve visited one, you need to find a planner and then prepare for your visit.


Generally, you should research individual financial advisers or firms, and you should look to trusted friends and family for advice.  But don’t stop there.  Your due diligence should include checking the background of the advisor, understanding the services offered and how they are compensated. You can use industry trade groups like the CFP Board of Standards (www.cfp.com) or investor education websites like those offered by the industry regulator FINRA (www.finra.org/Investors/) or independent advisor rating services like the Paladin Registry (www.paladinregistry.com/external/general/). You should interview two or three advisers by phone before you sit down and commit to a planning engagement. 


It’s also important to discuss your overall goals with the planner you’re interviewing so you can gauge their ability to help you meet those targets. It’s imperative that you and your financial advisor have clear and open communication.  And it’s equally important to understand each other’s roles and expectations from the relationship to avoid any future misunderstandings. 


Here are some questions you should ask a prospective financial planner:


What training do you have?  Find out how long the planner has been in practice and what kind of certifications they hold. A CERTIFIED FINANCIAL PLANNER™ professional is someone with a minimum experience of three years who has completed a comprehensive course of study through a degree or certificate program offering a financial planning curriculum approved by The CFP Board of Standards, Inc. CFP® practitioners must pass a comprehensive two-day, 10-hour Certification Examination that tests their ability to apply financial planning knowledge in an integrated format. Based on regular research of what planners do, the exam covers the financial planning process, tax planning, employee benefits, retirement planning, estate planning, investment management and insurance.  In addition, CFP ® practitioners must complete a minimum of 30 hours every two years of continuing education in these topics to keep abreast of changes that may impact clients. 


What services do you offer? What a financial planner offers is based on credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless they are registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics but do not sell financial products. Others may provide advice only in specific areas such as estate planning or taxes.


How do you charge for your services? Professional planners will provide you with a financial planning agreement that spells out the services they provide and how they’ll be compensated. Payment can happen in one of several ways:

  • Salaried planners are actually employees of a firm, and you help pay their salaries through fees or commissions you agree to pay.
  • Direct fees to the planner through an hourly rate, a flat rate, or on a percentage of your assets and/or income.
  • Commissions paid by a third party from the products sold to you based on the planner’s recommendations. Commissions are typically a percentage of the amount you invest based on those recommendations.
  • A hybrid of fees and commissions based on services. A planner may charge a fee for designing a comprehensive financial plan and occasional visits and calls to review it, while commissions might come from products they sell that you invest in.


Do you have any potential conflicts of interest? It may seem like a rude question, but the best planners expect this one and are prepared to make disclosure. Obviously, if a planner profits from the sale of investment products to you, she must spell that out. Some may receive indirect fees from the mutual funds selected (called 12-b-1 fees).  Others may receive a commission for placing certain business with a provider of a financial product as in the case of insurance or alternate investments like limited partnerships.  The method of compensation may be an inherent conflict of interest since a financial salesperson may be motivated to steer you toward a product purchase that pays the highest compensation for the sale.  Fee-only financial professionals do not receive any compensation from investment product sales which may result in more objective advice not tied to a particular product.


How do you feel about teaching and training? One of the primary benefits of having a financial planner is education about the moves you are making or may potentially make. Don’t view a planning relationship as tossing someone your finances so you won’t have to deal with them anymore. You will still need to be involved in this relationship and a good planner will help educate you.  While you’re not expected to be an expert in all financial matters, you will at least be able to make informed decisions with a base of knowledge. As long as you’re paying for their services, make sure you get a long-term education out of it.


(For a more detailed list, there is a useful brochure located at the investor education portion of the CFP Board’s website with ten questions you should consider asking any prospective planner).


When you select a planner, they’ll give you a list of documents and information to bring in for your first meeting, and generally, it will be detailed on a checklist that may include:


An income and expenditure checklist: This is a summary of current and projected income.  You’ll need to bring or detail:



  • A current pay slip
  • Profit and loss statements for business income
  • Pension income statements
  • Statements of non-investment income
  • Family trust distribution documents
  • Tax returns
  • Annuity, maintenance agreement statements



  • Home: Mortgage, rent statements, utilities, household repairs, insurance, appliance purchases, landscaping or house cleaning
  • Transportation: Gasoline, car loan, public transit expenses and parking
  • Food: Grocery and restaurants
  • Medical: Doctor, dentist and prescription bills
  • Education: Tuition, school fees
  • Child care: In-home our outside-the-home care
  • Personal grooming: Clothing, shoes and accessories, hair, makeup
  • Pet care: veterinarian, food and grooming bills
  • Insurance: Health, life, auto, disability


An asset and liability checklist: This is a summary of what you own and what you currently owe. You’ll need to bring or detail:



  • Principal residence
  • Vacation home
  • Investment property
  • Bank accounts
  • Investments
  • Collectibles and personal property
  • Automobiles, other vehicles



  • Mortgages
  • Credit card debt
  • Auto loans
  • College loans
  • Business loans


You should also be prepared to engage in a detailed and wide-ranging conversation that covers matters related to your attitude and experiences with money and financial decision-making.  Questions like how you choose investments or what kinds of information resources you consult or what risk means to you will be important to provide the planner with insight into your decision-making process and behavior type.  Armed with this information, a good planner will then be better able to make appropriate recommendations for your situation.


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According to a Wall Street Journal article, here are some of the many reasons why the financial planning process is vital for today’s consumer:


• Health care and education costs are

rising significantly faster than the general

inflation rate.


• Many retirees today will live 25 or more

years in retirement, requiring far more

financial management of resources to

maintain a desired lifestyle.


• Social Security and company pensions

no longer provide the majority of retirement

funds for many people.


• Tax laws change almost annually.


• Downsizing companies no longer provide

cradle-to-grave benefits or job security.


• The average American changes jobs

seven times in a lifetime.


• According to CardWeb.com, the average

American household today has

$9,300 of credit card debt, up from

$5,800 a decade ago.


• The Center for Association Leadership

reported a survey in which 50% of respondents

said they rarely, if ever, use

a household budget to manage their



• There are myriad investment options

available, and not all of them are appropriate choices for you.


Given our very busy lives,  is it very likely that a consumer will be able to evaluate all the options out there on their own without guidance? 

How does a consumer know how to make a proper evaluation of the various options on issues?

Most consumers don’t have a plan but a hope.  Yet hope, as important as it is on any difficult endeavor, is not a strategy.

Having a plan that starts with goals – an end in mind – will help focus one’s efforts and keep one on track even if detoured off course by the occasional pothole or market meltdown.

I want to encourage folks to open up and think about what they want their money to do for them.  It’s not enough to simply say, “I want to be rich.”  That is a relative term.  Being rich means something completely different to someone on Rodeo Drive compared to someone living in a hut in the jungle.

Regardless of where one lives there is common agreement that people almost universally want to be free from want, hunger, disease.  And all want to have a safe home for raising a family.

The trappings surrounding the success we call “being rich” are what may be different.

So how does one get there then?  Wishing alone will not make it so.

So take it one step further.  Be SMART about what you want – have goals that are Specific, Measurable, Attainable, Realistic and have a Time limit.

Having a plan is the first step.  Next is staying on track to get between Point A and Point B.  This is where the right coach can do wonders.  If Tiger Woods can have a coach, shouldn’t you?  A good coach can offer advice with an objective perspective, tell it like it is and be brutally honest. 

It’s a complex world out there – whole life versus term insurance, over 10,000 mutual funds, multiple options for elfer care and medical treatment, tax laws that change constantly.

Are you really sure that you’re prepared to handle these details on your own?  Do you really think that the Web or some talking head on TV is the best source of information for your specific needs?

Maybe it’s time to try something different and sit down with a real money coach, not just someone trying to sell you something.

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Separating the Wheat from the Chaff …

Trusting a Financial Advisor


How can a client trust a Financial Advisor? There are over 650,000 folks with registrations to sell products of one kind or another. It is awfully confusing for a consumer to figure out which person is best suited to help them and has the consumer’s interests (and not the advisor’s pocketbook) at heart.  


Consider the source of the advice and follow the money.  For comprehensive advice, it’s best to be working with someone working on your side .

The results of various industry surveys can be sobering.


In a poll of 1,200 individual investors, more than 83% admitted to not knowing how to determine the quality of a financial advisor.  More than 88% noted that they did not know the critical difference between advisors and financial sale representatives.  Nearly 85% base their selection of an advisor on some subjective criteria. These investors rely on an emphasis on personalities, brand names and advertising slogans.


A major source of investor confusion lies in the titles used by those in the industry. Financial planner, advisor, wealth manager, advisory representative titles mean very little to lay people.  And there is a virtual alphabet soup of credentials out there.  Some are issued by nothing more than “credential factories” earned in a weekend in a crowded hotel ballroom.


Consumers may assume that just because someone has initials after his name or passed a regulatory exam that that conveys some sort of expert status onto the advisor.


Since we live fast-paced and complex lives, it is sometimes difficult to have the time to do our own due diligence and we rely upon short-cuts to fill in the blanks here. As consumers we look to other trusted outlets to help in the comparison of products.  Think here of Consumer Reports and their monthly reviews of various products.  We are all familiar with Morningstar’s famous star rating system for mutual funds.  But there has rarely ever been an independent rating service for financial planners and advisors.  Consumers should consider the industry trade organizations as a resource.  Another non-affiliated third party trying to bridge the gap is the Paladin Registry (www.paladinregistry.com) , a four-year old firm that invites advisors to submit their information for review.  Those who meet their stringent list of criteria and background checking are rated as five-star advisors and featured as part of their network.


Whether a consumer decides to rely on a third-party organization, a trade group or a referral from a friend, I think that it is imperative that a consumer have a process in mind to selecting an advisor.


I would suggest that a consumer needs to consider at the very least:

·         Education

·         Credentials

·         Experience

·         Compensation Methods

·         Fiduciary Status

·         Background Checks


Anyone can hang out a shingle to be a “financial planner” or “financial advisor.”  There are minimal requirements to be licensed to sell securities.  But there is more to financial planning than just investing.


This is why the industry, trade groups and the media have been gravitating toward the CERTIFIED FINANCIAL PLANNER ™ designation as the standard.  This designation requires a commitment to education covering six major areas of financial planning ranging from insurance to retirement to estate and tax issues.  There is a rigorous multi-day, multi-part exam which has an average 50% pass rate of the typical 6,000 test takers each year.  Even if one passes, one can only use the CFP ® marks by passing an equally rigorous personal and professional background check including demonstrating a minimum of three years of related work experience. And there is an additional requirement for on-going professional education.


To learn more about the CFP ® marks or how to interview a prospective advisor, please visit the CFP Board of Standards web site at http://www.cfp.net/learn/knowledgebase.asp?id=8.


To access the regulatory agencies to check on a licensed sales professional, please visit http://www.cfp.net/learn/knowledgebase.asp?id=16.


Beyond the knowledge, skills and experience to do the job, consumers should consider if the advice they are given is compromised by the method of advisor compensation.  For a carpenter with only a hammer, all problems may look like a nail.  For someone who just represents life insurance, then all solutions will center on using insurance.


Working with an advisor should not be dictated by the size of one’s investment portfolio. 


I think it is imperative that an advisor be like other professionals and act as a fiduciary. Most do not. Acting as a fiduciary requires the advisor to act in the best interests of the client.  Advice has to be the best available for the client’s situation.  It is more than the standard that brokers must adhere to in their business of financial product sales. For a more complete discussion, you may want to check out the organizations I cited above or the independent rating service at www.paladinregistry.com.

A true planner is not expected to know everything but if you look in the text books you’ll note that the visual used is one of a quarterback – someone who can call the plays, leads the team and coordinates with other professionals. At the very least, a planner knows the client and can marshal resources and other experts.  

Planning is a process that requires full cooperation by the client, too.  A client has to also understand his responsibilities in the relationship. They can’t abdicate. They must be actively involved in the decision process. This means being truthful with the advisor and providing complete documentation. (Heck, if the same client went under the knife and didn’t disclose all the meds they take, can the doctor really be at fault if something goes wrong?).

With consumers burned by bad advice or inappropriate products offered by salespersons, it is no wonder that there is a lack of confidence.  But that is no reason to ignore taking action and working with someone qualified to lead through the financial jungle. Finding a qualified advisor does not have to be like searching for a needle in a hay stack. Using some common sense and the resources from reputable industry resources will help in finding the right person with the right approach for you.



CHARTERED RETIREMENT PLANNING COUNSELOR and CRPC® are registered service marks of the College for Financial Planning. CERTIFIED FINANCIAL PLANNER™ and CFP® are registered with the Certified Financial Planner Board of Standards, Inc.

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