Having a financial plan helps us set targets, draw up a realistic plan to achieve them and aim for our long-term financial goals. Often we do not have the time or the expertise to carry it off single-handedly. We need an objective third party who will help us out. The right financial planner is pretty tough to find. Following are some ideas on an advisor search and selection process.
Familiarization
Any financial professional can pass himself off as a financial planner. There is no single widely accepted accreditation or degree that defines a financial planner. There are, however, a number of credentials from reputed private organizations, which can be earned by completing courses of study and passing exams. Before you begin the search for a financial advisor, grasp the acronyms. Some of the relatively common and respected credentials are CFP, CPA-PFS and ChFC.
Financial situation review
Get all your financial documents in order and review them. Make a preliminary assessment of your financial needs and long-term goals. It will give an idea of the holes in your financial plan, what kind of help you need, and the sort of advisor you’d feel most comfortable with.
Information gathering
Run through your friends, family and colleagues to draw up a list of prospects. Check the financially acumen of your acquaintances and ask for recommendations. Use the Internet to look up associations of financial planners in your area. A couple of examples are The Financial Planning Association (FPA) and the National Association of Personal Financial Advisors (NAPFA).
Preliminary Contacts
Call the financial planner prospects and get a preliminary sketch of their specializations and credentials. Fix up interviews and clarify if you will be charged for the first meeting. Most financial advisors grant a free first meeting to talk about your needs and also to gauge whether they want to work with you.
Narrowing the Field
Before you actually meet up with the advisors, run a check on their disciplinary history. There are a number of associations where you can check for any disqualification or disciplinary actions against the financial advisor. Investment advisors file Form ADV to register with the SEC and/or the State. A quick check through the Investment Adviser Public Disclosure (IAPD) website will provide instant access to any advisor’s fees, business and disciplinary records. Concentrate on the ones that seem above-board.
The Interview
Meet at the advisor’s office rather than your residence or office. It will give an idea of the advisor’s business and clientele. Go prepared with a checklist of key questions to ask the advisor.
- 1. What kind of experience do you have? Please indicate the number of years. Find out how long the planner has been in practice. Ask her to describe her work experience and specializations. If the planner works in multiple areas like retirement planning, tax planning or insurance, get a fix on the years of experience in each category.
- 2. What are your qualifications? Question him on his educational qualifications and financial credentials. If he holds a CFP, ChFC or CPA-PFS, check on his background with the CFB Board or other professional organizations to ascertain the truth. Financial planners are required to undergo courses frequently to keep abreast of changes and developments. Let him name the last few courses attended.
- 3. Which licenses do you hold at present? Financial planners hold federal and/or State licenses to practise their profession. If the advisor is a Registered Investment Advisor (RIA), he will be registered with the SEC or the State.
- 4. What services do you offer? The services offered depend on the licenses, credentials and areas of expertise. Lack of certain licenses and registrations prohibits the advisor from selling some products or providing advice on certain issues. A highly specialized advisor may not suit your requirement of a comprehensive financial planner.
- 5. How many clients do you have? Too few should probably warn you of his competence and abilities; too many may indicate a lack of personal interest in clients. He may be spreading himself thin and delegating work to his associates.
- 6. Describe your approach to financial planning. Some advisors prepare a comprehensive plan to suit all your financial needs, while others prepare specific plans for each area. Check with the advisor on the type of clients she likes to work with. Ask yourself if you are comfortable with this advisor, her approach and working style. Any mismatch can result in an unnecessary drain on your resources and months of wasted effort.
- 7. Who will work with me – yourself and/or an associate?
If an associate assists the planner, check whether you like dealing with her. Any external brokers, lawyers, tax specialists that the planner works with also need to be checked out.
- 8. How will I pay for your services? How much do I need to pay?
Planners get paid on a commission basis if they sell specific company products. A fee-only planner may charge a flat hourly fee or an annual fee to manage your finances. It could even be a combination of fees and commissions, or a percentage of your assets under their management. Get an estimate of the annual payment that you may need to fork out.
- 9. Do you have an affiliation with any company/broker/sales agent or professional? If the advisor makes money pushing certain products or referring you to a specific broker/sales agent, you have the right to know. You must check their background and reputation to see if you are comfortable working with them.
- 10. Do you any disciplinary records against your name? Several organizations like NASD, CFB Board keep records on the disciplinary history of their financial planners. Run a background check on the advisor. Ask the advisor if she is willing to provide the Form ADV Part II.
Additionally check with the advisor if she will hand over a written agreement of the services provided and the payment terms.
Making a choice
After the interview, review the following:
Does the advisor listen to me?
Does it look like he has the integrity? Can I trust him?
Has she worked with people whose profile is similar to mine?
What are my gut feelings about her?
Take your time before selecting a financial advisor. It is best to choose one who meets your needs and with whom you have a high comfort level. One word of caution – do not sign any document which you do not understand fully.
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