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I like the new columns from Money Magazine featuring “The Mole,” an undercover financial planner. Like me, The Mole prefers to write anonymously to protect his or her identity. While my reasons for doing so pertain more with my desire to post sensitive personal information, The Mole maintains incognito status because he tends to speak out against the practices of his contemporaries and associates.
Some time ago, I considered publicly becoming a financial adviser or planner. Eventually, I decided it wasn’t the path I wanted to take, but the resulting discussion was interesting. So what does a would-be financial planner need in order to be hired and trusted by customers?
Perhaps a certification. The Mole says “maybe.” He has good things to say about Certified Financial Planners (CFPs), as he is one. This is a quality certification program with stringent requirements. Unfortunately, not all certifications require rigorous education and some have a loose grasp on ethics and fiduciary responsibility.
Now by my last count, there were more than 100 financial designations. Many, like the CFP, take a significant amount of time and expertise to master before the designation is awarded… Unfortunately, many of the others require nothing more than brief courses geared toward sales techniques; how to use emotions to sell annuities to seniors is a popular one.
A strong designation would reduce the chances your financial planner turns out to be sleazy like these annuities salesmen profiled by Dateline NBC.
However, even a designation like CFP does not guarantee the quality of the planner. Regardless of the designation, it’s best to get referrals from satisfied customers before selecting your financial planner. Don’t know anyone who is retaining financial advisory services? You can get referrals from the Financial Planning Association or the National Association of Personal Financial Advisors.
With referrals in hand, research your potential advisers with the North American Securities Administrators Association.
Walter Updegrave, another columnist for Money Magazine, submits the following:
I’d be wary of any advisers who contact me unsolicited, and doubly wary of ones who run free retirement-planning lunches or seminars. Many times such sessions are just a come-on to sell high-priced investments.
The lesson is to remain skeptical. If your adviser isn’t listening to your goals, suggesting products that are right for you, or trading frequently, it may be time to fire him or her, regardless of the adviser’s certification.
Do I Really Need a CFP? [Money Magazine]
Cracking the mysterious code of financial advisers [Money Magazine]
May 9th, 2008 at 9:59 am
I’ve actually been thinking about CFPs for the past few days and think that they’re good in some cases. If you need help with figuring how to setup your assets from the standpoint of estate planning, I believe that CFPs can be good as long as they don’t act like salesmen.
When it comes to investing though, I think that they are hit or miss. I personally am wary of any CFP that pushes their customers towards either certain annuity products or loaded mutual funds.
Just my $.02…
May 9th, 2008 at 11:42 am
I tend to agree with klerg. Financial planning may be ok, but the jury is still out on investing advice. I’m very well-read on this subject and I have the time to pay attention to my investments. I don’t think I’ll turn over my investment decisions ever to anyone else. But there may come a time when my money is more significant and I need advice – particularily tax avoidance advice (the legal kind).
But there are so many designations and certifications for planners that it makes me think of them as a rag-tag group. The only way you can be assured your planner is smarter than you is to check on their references.
May 9th, 2008 at 3:12 pm
It is an interesting topic. I have passed the education requirement and will take the CFP exam in either July or November of this year. I have studied my tail off and think I will be ready for July. I also am working right now for the required three years of experience as well.
With that said, I chose the CFP route because I am a person the loathes salesmen. Lets keep in mind that we ALL are salespeople, continuously selling ourselves to mates, friends, family, boss etc. So I do understand that just because I become a CFP, doesn’t mean I wont need to sell people my services, but there is a limit.
I think what I would like to convey and what I think the CFP stands for is simple….A trusted, expert on finances that I hope will last a lifetime with clients. An expert that will give it to you straight and EARN your trust. That is how I will operate. I would hope folks would be a little iffy about it, but over time I will earn their trust.
If someone comes into talk with me about a 401k plan and what to roll it over, I feel quality advice and something I will rest easy at night giving, is to open up a Rollover IRA at Vanguard. Now there is no money in this for me aside from a retainer or hourly fee, but the answer is NOT to open up a IRA with a company that will charge a 5% up front load and 1.75% annual expense ratio to help line my pockets. Now that is just ME, but I think the CFP backing and theory also plays into that mindset.
KC-
What are the other designations that you have in mind? There are a handful of really solid designations that mean something, but I would love to know which ones make you sketchy…
May 9th, 2008 at 4:42 pm
I am a CFP, but I always tell people that the CFP is a de minimis. If a planner hasn’t gotten the CFP (or CFA, PFS, ChFC – all other designations are weak), then you shouldn’t work with him or her. If they won’t take the time to educate themselves at this level, then they don’t deserve your business. So use the CFP as the first test, but it should not be the final means by any stretch.
I know so many people who have the CFP that do nothing but push annuities or high commission products. In fact, the only reason they got the CFP was to make it easier to sell product.
You need to find out answers to these other questions:
1. Are you a fiduciary? A fiduciary has a legal obligation to put their client’s interests first, above all others, including their own. If they won’t put your interests first, then you should move on to someone else.
2. How are you compensated? Look for someone who doesn’t receive any commissions. Sure, there are good commission planners out there, but a consumer will never know if the product being recommended is the best product or just pays the highest commission. So my advice is get rid of the biggest conflict of interest: commissions.
3. Do you build my plan or someone else? Most big firms ship your info to a back office who creates the plan. Your advisor doesn’t do anything except present the plan and push products. You should get someone who works with you, or you should at least meet the person who does your planning.
May 11th, 2008 at 12:42 pm
Zook – I think what concerns me about fiancial planners is that anyone can call themselves that. I’ve received business cards from people who claim to be financial planners, but have no initials after their name, period. Frightening. The funny thing is they prey on doctors, who are a very gulible group. I’ve just been scared off by so many salesmen (from so many areas (insurance, mutual funds, banking, etc) that claim they can manage my money. It makes me very leary of the field of finance in general and has prompted me to become self-educated so I can manage my own money without the help of anyone but my accountant.
I realize not everyone is a crook, but it can be really hard to tell the difference sometimes.