Financial planning can get complicated. If you do not have the knowledge or skills necessary to comfortably manage your money or if you simply do not have the time or inclination to do it, you might want to seek the help of a financial professional. There are many different types of advisors with many different specialties. You should understand what services various advisors offer and if they are able to meet your needs.
If you seek a professional who takes a comprehensive approach to your finances-dealing with everything from taxes to insurance to investing to estate planning-the type of advisor that may help you the most is a financial planner. Financial planners can develop an overall plan for you to meet your long-term goals. Of course, not all financial planners are the same, and you must do your homework to make sure you find the one who is right for you.
What services can a financial planner provide?
The most important things a financial planner can provide are an understanding of how your finances interrelate and direction on the best course of action in terms of the whole picture. You need to consider the short-term effects of your decisions while keeping the end in sight.
First, you and the planner need to define the length and scope of your relationship. It is up to you to determine what you want from the planner. Once that is done, the planner should explain and put in writing what services he or she will provide as well as what your responsibilities are. You should also decide how you will measure success. Planners should always explain how they are compensated up front.
A financial planner begins with a discovery phase that involves gathering and reviewing all the relevant information about your current financial situation, including tax returns, investments, debts, wills and insurance policies. With that information in mind, the planner should then have a discussion with you about your objectives and tolerance for risk.
The next step for the planner is creating an individualized, written financial plan. The financial plan should include a net worth statement, cash flow analysis, tax plan, college savings plan, retirement plan, investment analysis, estate plan, liability protection, debt strategy and insurance analysis. Every plan should assume realistic rates of return and make suitable investment recommendations. Make sure you fully understand and agree with the plan before implementing it.
How you and your planner will execute and monitor your financial plan is up to you and should also be put in writing.
What should I look for in a financial planner?
Interview at least three prospective financial planners before hiring one. Ask them about their education, experience, credentials and other qualifications. Ask for references and talk to several of them.
Make sure they do comprehensive financial planning and not just one subset. They should be able to cover cash management, tax planning, insurance, college savings planning, retirement planning and estate planning.
Planners should always disclose the ways by which they are paid. While one compensation structure is not inherently better than another, you should be aware of any conflicts of interest.
Financial planners might have many different credentials and licenses. One of the best known is the Certified Financial Planner designation. A financial planner who has earned the right to use the CFP marks after his or her name has met certain education, examination, experience and ethics requirements.
TIP: To find financial planners in your area, visit:
- Financial Planning Association www.fpanet.org/PlannerSearch/PlannerSearch.aspx
- National Association of Personal Financial Advisors www.napfa.org/
- Society of Financial Service Professionals www.financialpro.org/cons/index.cfm
What red flags should I look for when working with a planner?
If a planner only recommends investment or insurance products that his or her company provides, make sure you understand how the planner is compensated. There may be nothing wrong with these products, but a reputable planner should be open to discussing alternatives that might suit your needs better.
Planners also should not give you advice before they have gathered all the necessary financial information about you. If they suggest products without a reasonable understanding of your situation, they may be looking to sell you something without your best interests in mind.
TIP: To check the disciplinary history of a financial planner or other advisor, visit:
- Certified Financial Planner Board of Standards www.cfp.net/search
- National Association of Securities Dealers www.finra.org/Investors/ToolsCalculators/BrokerCheck/
What if I have a problem with my planner?
While it is always possible to lose money in the markets, you should not lose money because your planner is dishonest or incompetent. In that case, you might consider filing a complaint against him or her.
If you work with a Certified Financial Planner, you can make complaints to the Certified Financial Planner Board of Standards. The CFP board investigates complaints and may censure or suspend a CFP or revoke his or her right to use the CFP marks.
TIP: To report a complaint against a Certified Financial Planner, visit the Certified Financial Planner Board of Standards at www.cfp.net/learn/complaint.asp.
Most financial planners are also registered investment advisors, which means they are registered with regulators in their state and the SEC. You can contact those agencies to make a complaint. The SEC investigates complaints and advises investors about possible remedies. The SEC may also prosecute individuals who violate federal securities laws. The NASD investigates complaints and offers mediation and arbitration.
TIP: For a list of state securities regulators, visit www.nasaa.org/about-us/contact-us/contact-your-regulator/.
TIP: You can contact national regulators to file a complaint against an advisor at:
U.S. Securities and Exchange Commission
SEC Complaint Center
450 Fifth Street NW
Washington, D.C. 20549-0213
NASD Regulation Inc. / FINRA
1735 K Street N.W.
Washington, D.C. 20006-1500