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How to Hire a Financial Planner

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Does the subject of finance intimidate you, or at least leave you in a state of slight confusion? Most people likely feel this way. Nonetheless, our financial well being is of utmost importance and requires detailed planning and strategy. This is where financial planners can be of assistance.

Whether you’re preparing for retirement, saving for your child’s college education or just want to make the most out of your assets, hiring a financial planner may be for you.

What is a Financial Planner?

How to hire a financial planner

Do your research before you trust someone with your money!

Financial planners are investment professionals who help individuals assess their long-term financial goals and then make recommendations for investment products and services that will accomplish those goals along with a detailed plan of action.

Some financial planners can examine and plan for every aspect of your financial life, including deposit accounts, investments, taxes, retirement and estate planning and more. Others offer a more narrow focus and range of services.

Why Do I Need a Financial Planner?

If you have a substantial level of wealth and would like to not only preserve it, but grow it, too, you will need a professional to help you. As Emma Johnson of MSN Money states, “the fact remains that the financial landscape is increasingly complicated, and most people are not savvy enough — or interested enough — to navigate [it].”

Even if you consider yourself a financially savvy individual, you’re better off at least consulting a professional at some point. No matter how much you may know about finances, a financial planner is the ultimate authority. Even if you choose to devise your own plan, it is wise to hire a financial planner to look it over and make any necessary revisions.

Criteria for Hiring a Financial Planner

The Securities and Exchange Commission lists a few questions you should always consider when hiring a financial professional. They include:

  • What are their credentials?
  • How are they paid for their services?
  • Can they provide references?

A certified financial planner is more likely someone to be trusted in the field than someone without the certification. In order to receive certification in financial planning, a person must hold a bachelors degree and have obtained a CFP certification. This includes courses in the mastery of over 100 financial topics like general principles of financial planning, investment planning, retirement planning and estate planning. Finally, they are given an exam, which they must pass to be certified.

A financial planner affiliated with the National Association of Personal Financial Advisors (NAPFA) is a huge plus as well and adds to their credibility.

You should also be sure to know how a financial planner gets paid because it may affect the guidance you receive. Some financial planners receive commissions for investments they recommend. This may present a conflict of interest when it comes to the investment advice they give you, but it is not always the case.

You may instead choose a fee-only financial planner who will charge you based on an hourly rate or as a percent of assets and does not stand to gain anything by making investment recommendations.

References are important as well, as with hiring any professional. A person may be a self-proclaimed financial planner yet be completely inept. Another consideration is hiring a financial planner from a large company, or an independent financial advisor. There are pros and cons to both.

In addition, you should never hire the first planner you meet unless they are the best out of several interviews you have conducted with others. Your trusted friend may have provided you with the name of planner who did great things with their portfolio. They very well may have, too. They may not, however, be the best fit for you. The only way you will know is if you spend time with several financial planners to discuss the above points first.

Finally, it is a good idea to run a background check on the financial advisor before you hire him or her. A background check can alert you to consumer complaints, see if they have had any disciplinary actions, verify their licenses and certifications, and more.

This guest post was written by Go Banking Rates, bringing you informative personal finance content and helpful tools. You can follow them on Twitter at @GoBankingRates.


Published or updated March 28, 2013.
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{ 10 comments… read them below or add one }

1 Bern

My number one tip: Hire a financial planner that does what he/she is advising you to do and make sure it aligns with what you are trying to accomplish.

He/she will be able to guide you in your decisions because he/she is or has done the same thing.

Keep in mind that you might outgrow your financial planner. If you do, address the situation because you may need to move on.

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2 Kim

Ryan,

Just as a background info, back in the early years when the CFP group was trying to establish themselves, they were hawking the CFP credentials to anyone who was willing to pay a few hundred dollars a year. No experience or training required. They mailed flyers to every financial advisors in the industry. Many of those CFPs are still around because all they need to do is to renew the fee every year.

It’s still buyer beware when it comes to credentials.

Investors should also ask what does the planner bring to the table? Are they just going to spit out a plan from a computer program and does the planner understand all the concepts. If so, the planner needs to be savvy enough to challenge the calculations from the computer. Even the top of the line program in the industry has mistakes in their coding and calculations. They will fix it if someone brings it to their attention.

There are many bitter people out there who uses a $10,000 plan from a CFP as a doorstop.

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3 Ryan

Thanks for the insight, Kim. I wasn’t aware of how the CFP designation was bandied about in the early days. From what I understand, it’s a fairly rigorous process to get the certification now.

Thanks for the additional tips. Computers are great, but most people have unique situations that require an additional human element and decision making. I’ll keep this in mind when I go seeking a financial advisor!

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4 Kim

Ryan,

It is a much more rigorous process now which I approve of. However, the testing is still on the level of the SAT because it’s a standardized test. It doesn’t test knowledge as much as memorization and how to do the test. The test is also graded to purposely fail about 66% of the takers. The passing score changes from year to year depending on how well the entire pool test.

The modules required before the test takes a couple of weeks per module to do. There are 6 of them that you can take online. Most people spend more time studying how to take the test than the materials on the pre test unless you studied through a college program.

One of my friends runs a 6 six week program for people to cram for the CFP test and she cautions long time professionals all the time to stop using their brain when studying and taking the test. CPAs tend to fail the tax section. Lawyers tend to fail the legal section. This happens because they apply real life instead of just reading the test question and only answer within that scope even if it is wrong for real life.

Even with the drawbacks, it is still better than nothing. At least it exposes people to all the different arenas that they need to consider when giving advice.

The BA requirement is new as of 2009, I think. (Can’t remember the year without checking.) Before that, you didn’t need anything including a high school diploma. They also added a requirement of a few years in the financial industry before you can take the test.

I think it gives people a great foundation to start from if they are planning to work in the industry.

What would be more interesting is to see how many existing CFPs would fail the test if they have to retake it every two years.

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5 Roger Wohlner

Kim I took the exam about 15 years ago and it was a killer. Ten hours over two days. I spent several months prepping for the final as well. Out three kids ranged in age from 3-7 at the time, my wife said she felt like a single parent for first half of that summer.

Like any test it is about passing the test. In fact the instructors for the prep class that I took stressed looking for the right answer even if it goes against your own experience. I taught a similar review class several years later and stressed the same thing to my students.

The ongoing learning is in the CE that we are required to take to maintain the certification. For the CFP designation it is 30 hours every two years, mine is double that due to the NAPFA requirements.

6 basicmoneytips

There is so much information out there on the internet, I think the need for financial planners has decreased (just my opinion). Let’s be honest, if you have 10K and are just going to open an account and break it up in a few mutual funds, why do you need advice? A 30 min search on the internet can get you the same thing.

However, if you are looking for things outside the box, a financial planner might be a good option. Things like private REITs, certain municipal bonds, etc maybe instruments you want to work with a financial planner on.

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7 Ryan

basicmoneytips, you’re probably right about someone who has limited funds, but using a financial advisor can be a great way for many people to plan for their entire future, not just investments. Insurance, estate planning, business advice, and other aspects of your financial plan can come into play. I think a lot of it depends on where you are in your stage of life.

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8 Michael J. Sloan, CRPC

What amazes me is the ignorance of your guest editor. Their definition of a “Financial Planner is incorrect. They post:

“Financial planners are investment professionals who help individuals assess their long-term financial goals and then make recommendations for investment products and services that will accomplish those goals along with a detailed plan of action.”

A financial planner will evaluate and advise on 5 key areas of your finances.
1. Risk Management- do you have adequate and appropriate life, health, disability, property casualty insurance coverage etc.

2. Investments–Do you have an investment plan that is suitable to your specific goals and risk tolerances

3. Taxes– are you taking advantage of all appropriate tax saving possibilities

4. Retirement Planning– helping you develop and implement a retirement strategy depending your whether you are saving for retirement or in retirement and need help designing an retirement income strategy

5. Estate Planning– helping you design a plan that will transfer your assets to to your heirs and beneficiaries in a timely and efficient manner both through gifting while alive and at death.

I say this not to diminish the work of investment advisers but to inform the public that there is a huge difference between just advising someone on their investments and being a true Financial Planner.

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9 Ryan

Michael J. Sloan, CRPC, it appears as though you missed the following sentence in the article, in which the definition of financial planner goes on to state,

“Some financial planners can examine and plan for every aspect of your financial life, including deposit accounts, investments, taxes, retirement and estate planning and more.” (emphasis mine).

The only line item in the article not specifically mentioned in your comment is risk management.

The definition given in the article on my site is also similar to the definition found at the U.S. Securities and Exchange Commission.

While the SEC is not the authority source regarding professional designations, it is generally respected as an authority for other laws and regulations in the financial industry and is full of valuable information for financial professionals and lay people alike. I highly recommend spending a few moments at the SEC website when you get the opportunity.

I would also like to point readers to the Financial Industry Regulatory Authority (FINRA), which is a highly respected organization in the financial industry.

“Financial Analyst, Financial Adviser (Advisor), Financial Consultant, Financial Planner, Investment Consultant or Wealth Manager are generic terms or job titles, and may be used by investment professionals who may not hold any specific designation.” (Understanding Professional Designations – FINRA)

It is important to note FINRA does NOT approve or endorse any professional designation; this list is merely provided to educate individuals regarding generic, but official sounding, titles. The list provided by FINRA is by no means inclusive of all generic financial professional designations. One notable example of a generic title that was left off the list on the FINRA website is the term “financial services professional,” which is used by many individuals of varying levels of qualifications and/or certifications.

Michael J. Sloan, CRPC, thank you for taking the time to comment on my website. The additional research carried out to answer your response should help many individuals understand the difference between official financial designations, and self-proclaimed titles such as, “financial services professional,” which are more or less titles that sound nice, but have no real meaning.

By the way, I would like to point out an area of improvement on your website, which provides the following definition for a financial planner, “A person who helps you plan and carry out your financial future.”

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10 Roger Wohlner

Ryan I appreciate the link to the NAPFA site. As a NAPFA registered advisor I am certainly biased but I think the fee-only approach is generally the best for folks whether they are seeking full-blown ongoing wealth management services or hourly advice on an as-needed basis. As the regulators debate whether a Fiduciary standard is needed and what that standard should look like, NAPFA registered advisors sign a Fiduciary Oath when they join and reaffirm that oath at each renewal. While this is not an iron-clad guarantee against the worst aspects of human behavior (we’ve had two former NAPFA presidents indicted/accused) it is a great starting point for investors to know their advisor puts their interests first.

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