How To Choose A Financial Planner - Yes You!


I don't care who you are. (Well, actually I do, otherwise I wouldn't be writing this).

What I mean, is I don't care about your background, education, financial prowess, or absolute lack thereof.

You need a Financial Planner!

I don't care who you are. (Well, actually I do, otherwise I wouldn't be writing this).

What I mean, is I don't care about your background, education, financial prowess, or absolute lack thereof.

You need a Financial Planner!

Pursuant to Julie's article on Personal Financial Advisors Awaiting Your Call, there are a number of different credentials, titles, creeds, and pay-scales that flood the financial services industry and can confuse the heck out of the average bear.

In fact, even the idea of seeing a Financial Planner may be so daunting (or embarrasing?) that you find ways and excuses to avoid it altogether. Here are a few things to think about in your search, or to compel you to search depending on your current position.

1 - Everybody needs a Financial Planner. I feel very strongly about this one. I don't care if you have $70,000 in debts and $5 to your name (I actually had a client like this once), or the other way around. A Financial Planner is more than a money manager, and everybody can benefit from their services. And the younger you are when you start to take control of your finances with the help of a planner, the better off you will be in the long run.

2 - Call them what you will. I'm calling them Financial Planners here, but they can be Financial Advisors, Investment Advisors, Personal Bankers, etc. Technically anybody can hang a shingle out tomorrow calling themselves a Financial Planner. The trick is…

3 - What are their credentials? As Julie mentions, there are any number of letters and credentials and titles that people can carry. The hallmark for Financial Planning is the CFP (Certified Financial Planner) designation, which is internationally recognized, the requirements of which entail years of education in addition to extensive work experience.

4 - Where do they work? Check out the company the Planner in front of you is representing. Are they a major player in the industry, or a ma-and-pa shop? Some people don't mind ma-and-pa, some do. Are they limited to proprietary investments, or can they recommend what is truly best for you? A large firm generally lends some credibility to the Planner, although this isn't a sure and fast rule. Ask your friends & family who they use; most often referrals work wonderfully.

5 - What can I expect? True financial planning isn't investment management. It isn't banking or loan services. It isn't insurance. And it isn't taxes. It's everything. A real Financial Planner is going to take a personal approach to your financial situation. They should sit down with you and analyze your entire financial situation. Income, expenses, assets, liabilities, insurance, and even some of the intangibles like your personal approach and attitudes towards money. They should be interested in what you want to accomplish with your life, what major purchases you have in your future, what sorts of vacations you like to take, and how you envision your retirement years. They also need to know your personal tolerance for risk and fluctuation in your investments, and should coach you on it. If they don't do all these things, they can't properly advise you!

6 - Won't this cost a ton? Financial Planning actually doesn't have to cost you a penny out of your pocket, depending on the planner and where you go for your services. Many banks have a team of Financial Planners who are available to help the bank's clients. They are paid a salary by the bank, and often don't cost you a thing. You can also choose asset-based advisors who again, you won't have to pay for out of pocket, but who are only compensated by their employer based on the money you invest with them. Believe it or not this doesn't mean that you necessarily need a ton of money to invest; many of these advisors want long-term relationships and believe they can help you over the long run and will ultimately be compensated for it. And of course, there are also fee-based planners and those with other methods of compensation, which go beyond the scope of this article.

7 - Who is best for me? What you need to look for in a planner is somebody you like first and foremost. If you're going to share details about your financial life and dreams and expectations, you need to feel comfortable opening up to them and establishing a relationship of trust.

8 - Can't I do all this on my own? There are a ton of solutions out there on the internet. My response to that is: Do you have a life? The job of a Financial Planner is a full-time gig. They know a lot and need to stay up-to-date in the ever-changing world of finance. If you keep up with all the latest tax legislations, investment regulations, and insurance opportunities and lingo, then be my guest and give it a whirl. What you'll still be missing is a third party perspective, and possibly some creative strategies that you (or your research) didn't think of.

In addition, I believe in delegation, and the fact that time is money. You defer your legal matters to your lawyer, and tax matters to your accountant. You defer your medical matters to your doctor. You don't perform surgery based on an internet program's recommendation, do you? And if you are still asking why you can't just do it on your own, please refer to point 5 again. I've yet to find a financial planning program that is intuitive enough to do all that.

Your time outside of work is better spent enjoying life, spending time with your family, and chasing down dreams. Not toiling over your finances in a hap-hazard way. Really.

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Guest's picture

You're advice is spectacularly bad. First of all you're a financial planner! Of course you think everyone needs a financial planner. Second you should never use anything but a fee based planner, if you insist on using one. Using a commissioned planner is foolish. Third 99% of people have no need for a financial planner. When your net worth is under 7 figures personal finance is very simple. Invest in index funds, buy some term life insurance, buy a house on a fixed-rate mortgage, put some money in a high-ranked 529 plan for your kids' college if necessary, and spend less than you make.

Guest's picture

Everyone is entittled to their own opinion of course. My opinion is that the advice is very good... everyone needs a financial planner. Perhaps that planner can be one's own self if they have spent the enormous amount of time needed to deliver. A financial planner, certainly an honest one, is well qualified to render that opinion. Perhaps this one is a raving crook as you seem to imply. I'm more inclined to believe you have a burr up your ass... and don't realize it.

While I favor fee only planners, the fact is, you pay them up front, generally by the hour. With commission planners, you often see no fee. Their advice tends to be more limited, but less costly. And for those who have less, this may be the more practical approach.

Personal finance is not simple. And the less you have, the more important it becomes to use it wisely.

Invest in index funds? There are hundreds of choices. Buy all of them? A little research reveals they fluctuate just like other stocks... because, they are stocks.

Shawn , you need to get out more. Really.

Andrea Karim's picture

I, personally, am really glad that I recently found a financial planner. My income is well under 7 figures (unless you count my blogging income, which comes in the form of a dump truck full of cash that is deposited in front of my house every other day), but regardless, I still needed help sorting out what to do with my money. I've figured out a lot of ways to save money, but not a lot of ways to make my savings work for me.

See, not everyone understands index funds. Not everyone knows what kind of life insurance they need. Not everyone can afford a house (but this doesn't mean that they shouldn't plan for the future). Not everyone HAS kids. Financial planners can help you sort out the best ways to reach your goals. Sure, maybe some people figure it out on their own, but there's nothing wrong in seeking help when you need it.

Justin Ryan's picture

When I first opened my business, I met with a close friend (an attorney) who advised me that I needed to consult with four professionals before I did anything else: a corporate attorney, an accountant, an insurance agent, and a personal banker. Of the four, I spend the most time with my personal banker, and I don't know what I'd do without her. It helps to have someone who can give me advice that actually works for someone in thier mid-twenties, who is unmarried and childless. I don't have the same needs as a married couple with kids, and I wouldn't trust anyone who suggested I should accept an investment strategy designed for such.

If you find yourself talking to anyone who tells you they have a one-size-fits-all, works-flawlessly-for-everyone-regardless-of-circumstances plan for your finances, run as far away as you can, as fast as you can.

Guest's picture

I have a friend who was trained as a financial planner. She was in it to help people work with money properly to attain their dreams. It turned out that all the jobs she could find were commission-based sales jobs. She had to sell the kind of "products" (still a fishy word in finances, to me) that her company made the most money on regardless of whether they were good for the client!. Needless to say, she quit and retrained as a software engineer.

Jessica Harp's picture

I'm kind of in the same boat as ScottMGS's friend...all of the financial planning jobs I have applied for have turned out to be commission-based.  In every interview, it was made quite clear that I would be responsible for selling x-number of products or I would be fired.  I asked, "What if my clients don't need your products?"  The answer was, "Well, you'd better figure out a way to make them need our products."  Needless to say, I stopped applying for financial planner positions.  I refuse to sell products...especially products that I don't agree with.  I tried finding work as a fee-based financial planner, but those jobs were for people who had been in the industry for 10+ years and who had paid their "dues" (i.e. they had sold financial products). 

I work as a financial counselor now with a non-profit organization, but it's not really what I want to be doing.  I craft debt-management plans for clients, but this doesn't utilize my full body of knowledge.  So, I'll be retraining to be an Accountant.    

Anyway, I'm now a little bit jaded by financial planners.  Where I live, almost all of the financial planners are commission-based.  I sort of agree with Shawn -- the average person does not need a financial planner.  If you just take a little bit of time to educate your self about IRAs, Mutual Funds, other investments, insurance, etc... then you can "pay" yourself to handle your own finances.  If you are going to have a financial planner, you should really ask yourself, "Why is this person trying to sell me this product? Do I really need this product."  I've talked to so many smart people who are carrying way too much life insurance or who are paying too many fees on an investment because their financial planner told them it was the "right" thing to do.     

Guest's picture

THAT is the real problem. It's too easy to become a financal advisor - all you need is a self-study course and basically you are ready to "advise". The CFP in my opinion is too easy - the text books should be used to teach personal finance in high-school and college.

I think that if advisors were required to have the CFA, the industry would me much better off - as would investors.

I disagree that 99% of people can do it on their own - they cannot. I have yet to meet someone who has it ALL figured out. While there are lots of people who do a better job than their advisors can, there are numerous people who use an advisor for the same reason you hire a landscaper - it's not that they can't do it themselves, they just can't be bothered or don't have the time.

Guest's picture

Anytime I hear advice that starts with "Everbody needs..." I completely ignore the rest of what the person has to say.

Nora Dunn's picture

I knew this article wouldn't make me many friends. But it's a topic I'm particularly passionate about, and was even before I became a financial planner.

@Shawn: I'm glad that you feel secure in your finances. That's the most important part. And frankly, some people aren't very accepting of advice or third party perspective. That's okay too - they are truly DIYers and take great pride and joy in it. BTW - I'm not a financial planner any more. I'm retired at age 31, due to the financial plan I started with my own planner when I started working as a teenager.

@ScottMGS & Jessica: The big crux of the financial services industry is just that: to commission or not to commission? How about an asset based income, where the advisor is paid an annual percentage of all the money they manage (hence if their clients' money grows = more income, and if it plummets = less income)? Is that better? I'd love to get your opinion on that.....I too have had many struggles with commission-based planners that are forced to meet quotas.

It's ultimately why I stressed that the best planner for you is the person you trust. If you don't have a relationship of trust with them, you'll constantly be wondering if they have an alternate agenda. Yikes.

@Jessica: I'm sorry your career didn't work out as a financial planner. I guess I just lucked out in finding a company that cites integrity as their first and foremost creed. Maybe it's a different climate here in Canada.

@Matt: Since you didn't read the article I may as well not respond to your comment that you didn't read the article, since you probably won't read the comment on your comment, huh? :-)

Myscha Theriault's picture

You know what? If the person with the simplified plan that posted first is happy, then good for him.

However, based on his outline, I sense he'll be working far longer than he needs to. I too, retired before the age of 40 and that didn't happen with luck. It happened with a little bit of DIY research, a lot of discipline and yes, the advice of financial planners. Although, I have to say, not all financial planners are created equal. So it definitely takes some self initiative and knowledge to weed your way through bad advice.

I'm amazed at the number of people who are still working who try to discredit the strategies of those of us who have figured out how to stop early. If they are happy with their strategies, fine. I'm not going to pass judgement on them. However, it would be nice if they acknowledged that our suggestions have at least some merit, cuz gee, we're retired . . . and ahead of schedule, to boot.

You're doing a great job. Keep your chin up and keep writing.

Nora Dunn's picture
Nora Dunn

I'm not worried.......and I still have a smile on my face! And I echo everything you just said. You go girl!

Julie Rains's picture

I like the pay-for-performance business model the best (% of assets isn't perfect but it does link the advisor's interest with the client's interest). It would seem that any model could work, but in practice the performance model should make the most sense (though I have talked to a few in that realm who only dealt with high-net worth clients so to a certain extent, getting the business/landing the account rather than giving great advice was key to their success). The fee for service should also make lots of sense but Ameriprise, for instance, which offered such an arrangement to clients has just settled a class-action lawsuit for claims that its agents dispensed standard advice and sold it as customized:

So, you might see, why some people choose to go it alone; though sound advice is invaluable, it's often extremely difficult to find.

Guest's picture

I can't believe some of the blanket statements being posted here.

A vast majority of us live beyond our means. Personal bankruptcies are a common occurence these days. Huge credit card debt is a norm in most households. Personal savings are at historic lows. Financial products and matters are significantly more complex and confusing than they were even 10 years ago.

To claim that everyone should buy term insurance and index funds is not only iresponsible, but absolutely ludicrous.

If financial planning is so easy that a caveman can do it, then why are so many North Americans in such terrible financial shape.

I find Shawns comment particularily ironic given that he posted his comments on a web site that teaches you how to be cheap/frugal.

Guest's picture

I've been reading over the comments and while I know I'm intelligent enough to figure out basic finance for myself, I'd really rather not have to spend a lot of my free time researching what feels like a million and one different investment strategies out there. However, I really want to follow in the footsteps of those people who left comments saying they retired at the ripe old age of 31!
So this is my situation: I'm 22, just finished my BA and am in the process of starting a career in the non-profit field. I was lucky enough to graduate without any debt from school, but my net worth is pretty low. I've done basic financial planning in the past (paying my tuition, buying short-term CDs) but I still feel fairly intimidated by walking into a bank and trying to discuss finance with someone drastically older than me. Also, I need long term investments I can build on slowly - I don't have much to start out with, and I don't think I can afford to see someone who charges a flat fee.
Anybody got suggestions for us clueless college grads?! Thanks!

Guest's picture

I believe that the best way to find an advisor is to ask your friends or family who they use and if they would recommend him or her.

Ask them questions what they like or don't like about their advisor and then interview 2 or 3 of them to make sure that you feel comfortable.

Don't feel as if you are wasting their time. After all, you are bringing them business, not the other way around. Most advisors will look at your future potential, not just at your current assets.

Guest's picture

Pasted below from nobosh:

6: Actively Monitor Your Account with the Help of Professional Support
401k accounts are self-managed. You are ultimately responsible for making every decision regarding the welfare, maintenance, and performance of the account.

Although you will be making the final decisions concerning your money, asking for professional guidance is a great way to learn about your options. When you contact your company's administrator be sure you are talking to a fee-based advisor and not a salesperson. Seek out an advisor who:

1. Is a Certified Financial Planner
2. Has been in the industry for 10 years
3. Is available to work with you in the future
4. Will take the time to review your big picture goals and prepare a financial plan that will help you attain them

If you have any other questions try:

Guest's picture

Re: "...the advisor is paid an annual percentage of all the money they manage (hence if their clients' money grows = more income, and if it plummets = less income)..."

Nora, I could see using a person who's paid based on the increase in a client's assets but not on a percentage of the client's assets. Of course, it would have to be based on some sort of index (Cost of Living?, some index fund?). Then, the question is does the advisor pay the client if the result is negative with regard to the index. Hmmm...

Nora Dunn's picture
Nora Dunn

@ScottMGS: Good ideas. In regards to whether the advisor pays out, I urge you to consider that the advisor is investing a lot more energy/time/etc in the client relationship than simply investing assets. (As I alluded to, there is much more to financial planning than investing, and as the quarterback the financial planner has no small job). And my opinion is that they need to be compensated for it somehow, and not penalized if the markets tank which is ultimately out of their control. (I don't care how good you are, you can't predict and avoid market corrections every time).  

All of this is of course said assuming the advisor isn't negligent in the investment management and more-or-less responsible for the dip in the portfolio.