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Working With a Financial Adviser: How to Prepare for the First Date

This article was written by in Financial Advice and Advisers. 20 comments.


This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals and described the common certifications to help readers start on the right track. I also wrote about selecting the right planner. When you’ve narrowed your choices to a few, you’re ready to start meeting planners in person to determine if who is the right fit for you. A series of “first dates” can be daunting, but here is what you need to know.

The right financial planner will stick with you for a long time. Your relationship with a financial planner is long-term, like your relationship with a dentist or family doctor. Through time, these professionals get to know you better and understand your needs, desires, and means. Selecting the right financial planner takes effort and care, much like selecting the person you intend to marry. Finding your potential spouse is not an easy task, and often requires a number of first dates before connecting with the best match. It’s the same with financial planners — you don’t want to lower your standards when it comes to managing your money.

By now, you’ve narrowed the list of potential planners down from hundreds in your local area to fewer than ten, or better yet, fewer than five. It’s time to call the planners, introduce yourself, and schedule a free consultation. Any planner who is worthwhile will be willing to meet you for a short time, no less than an hour but no more than two, for free. This “first date” is your opportunity to interview the professional. He or she will be working for you, so this is part date, part interview, the purpose of which is to determine if there is the right fit.

Different people need different types of help from a financial planner. Some need to be told when they’re making decisions that will hurt their finances, and some will be turned off if it seems like the planner is judgmental. My friend whose question inspired this series seemed concerned that she would be criticized for making choices that may not have been in her best financial interest. While some people seeking planners need a bit of a kick to get on the right path or need to have some sense knocked into them, this type of motivation does not work for everyone. Your initial consultation will let you know if your personality matches that of your planner.

The Certified Financial Planner Board of Standards offers a list of ten questions that you can ask your planner during your initial meeting, but if you’ve done your research, you may already know the answer to some of these. You can see the full list in this brochure [pdf], and they include what you may already know, like qualifications and experience. It would be good to hear this information directly from your planner, but I think there are a few questions that are worth exploring in depth.

Number 4: What is your approach to financial planning?

This gets to the heart of a financial planner’s philosophy. You may find that her philosophy does not match yours, or that he offers some interesting insight that you have not considered. Find out about the planner’s typical clients, in terms of income range, marital status, and occupation. If you’re an artist, has she worked with other artists before? What challenges might be addressed differently with artists than with, for example, marketing executives?

Number 6: How will I pay for your services?

Pay structure is very important. Planners can work as fee-only, commission-based, or somewhere in the middle. With commission-based payments, planners are compensated by third parties, like brokerages, investment managers, or insurance companies. When a planner is working on a commission and recommends a product, there is always the question of whether the recommendation is in your best interest or your planner’s best interest.

Fee-only planners, on the other hand, will charge you a fee to meet with them. It will most likely be an hourly fee, a flat fee, or a percentage of your assets. Fee-only planners are paid the same regardless of whether they recommend an actively managed mutual fund or an index mutual fund. While this doesn’t guarantee the planner makes the best suggestions to you, but it does help satisfy the concern that they’re making their recommendations based on their potential income.

Other planners charge fees and receive commissions, and planners who do this often call the practice “fee-based compensation” to semantically align their practice with fee-only planners. Keep in mind that any commission means there is a salesperson inside who needs to be motivated by their own financial gain. This isn’t always bad. Many times, a planner’s financial gain coincides with his client’s financial gain, but it isn’t always the case.

Number 10: Have it in writing.

Get any terms the planner is offering in writing. This makes it easy to refer to if you have any questions.

Not mentioned in the brochure is the concept of fiduciary responsibility. It’s best to work with a planner who is obligated to make decisions that are in your best interest at all times. A fee-only planner is more likely to bind himself to fiduciary responsibility, but it is not guaranteed. Ask the planner about her fiduciary responsibility and ensure this is outlined in the agreement.

You may go through this process with the first planner you schedule a meeting with and decide he or she is a good fit. If you wouldn’t marry the first person you dated after your first date with that person, consider meeting a few more planners to get a feel for different style, approach, and professionalism. It may take some time, but when dealing with personal finance, there aren’t always “right” answers and “wrong” answers; you want to find the planner who sees the world the way you do and gives you confidence that he is the right person for your team.

Thanks to RJ Weiss, a Certified Financial Planner and the blogger behind Gen Y Wealth, who helped contribute information to this article. RJ will be providing a guest article later in this series.

Updated June 20, 2014 and originally published April 11, 2011. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 20 comments… read them below or add one }

avatar Investor Junkie

I don’t “put out” on the first date.

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avatar shellye ♦107 (Cent)

LOL – that’s a great analogy…

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avatar Ceecee ♦53 (Newbie)

Maybe it’s just me, but I hate the idea of paying someone to manage my money. Too much DIY mentality, I guess. I feel that if I turn it over to someone else, then I don’t learn anything.

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avatar Investor Junkie

I think it depends upon your mentality. Some are cut out for it, but others are best to get someone who will stay the course. I’ve heard to many people sold in March 2009, and miss the rally we’ve seen.

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avatar RJ Weiss

A financial planner doesn’t necessarily manage your money. It all depends on how the financial planner is compensated.

For example, a fee-only planner can help you determine your risk tolerance, show you were you should invest, and help you choose your asset allocation. After doing so, the hand the control back to you.

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avatar SteveDH

It may be a little trite but here’s my theory. If the first thing a Financial Planner asks you is “How much do you spend?” and uses that to project into the future, he (or she) may very well be working on your retirement plan. If they start by asking how much you make, save, where you save and where it’s invested – they are probably working on ‘their’ retirement plan. Additionally, if you can’t answer the first question about spending even the fee-only guys should tell you to come back when you can.

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avatar krantcents

Although I do not use a planner, I see the value of a “fee only” planner for some people. Before you should select a planner, you need to learn a lot about the process. So I see the value of a set of questions, a brochure and perhaps a referral. I would probably go to my lawyer or CPA for that referral.

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avatar Dr Dean

I think I know a lot about this area, certainly way more than average IMHO. But I am not an expert, and when you manage to build up a certain amount of wealth, I think getting professional help is worth the money.

As I tell my patients when I refer them to a specialist, If they don’t feel like they click with the specialist, let’s find someone else. They may be the smartest doc in the country, but if the patient doesn’t trust what they have to say, that intelligence is wasted.

If you can’t find anyone to satisfy you though, the problem is probably you, not them!!!

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avatar wylerassociate ♦162 (Cent)

very good column. I’m also someone hesitant about trusting someone with my money.

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avatar Pat S.

Nothing drives a financial planner crazier than a customer who doesn’t know how much money they have or where it is! Make sure you at least know where your cash is parked before any first “date”.

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avatar Jon | Free Money Wisdom

The best “financial advisor” is yourself. You know your own risks and can take your own reponsibility for your actions. I find personal advisors to be useless if you ask me! Welllll if I made millions, I would probably want one, but the average American does not need one.

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avatar Marie@familymoneyvalues

My personal experience with planners consists of a free financial plan developed for us while I worked for Waddell & Reed (an employee benefit); a free financial plan developed for us after a week of ‘education’ on retirement considerations (a class offered at another employer, but provided by third parties) and a ‘free’ consultation with Vanguard Certified Financial Planners to get recommendations on how to invest recently rolled over funds.

I found all of them to be pretty worthless. The first planner basically told us to just keep doing what we were doing (we were and are savers). The second ‘free’ plan called for us to invest all our assets with that third party! and the last consult with Vanguard did not touch on my risk tolerance, goals or anything except my age.

If you have enough money, and lack the inclination to manage it, financial management (including the planning and actual operational control of the money) might be in order. It can be time consuming and complicated to manage significant and diverse assets.

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avatar Paula @ AffordAnything.org

I personally dislike the idea of paying someone to manage my money — I feel like reading a few books and reading a few blogs can give anyone the knowledge that they need to manage their own money. I suppose, though, if you are extremely busy and your time is very valuable (e.g. if you are a neurologist), having a financial planner would make sense. In this case, I’d get a fee-only planner so that they don’t make recommendations based on their commissions.

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avatar Will @ HackingTheBank.com ♦258 (Nickel)

Wow, interesting word choice for “free-based compensation”. They definitely would have gotten me. I would have assumed this meant they were only paid by fees.

I think many people are read ConsumerismCommentary are going to be interested in doing their own finances and they’re going to be able to. Those are the type of people who read a personal finance blog. Many “normal” people don’t have the capacity, time or desire to learn about personal finance and make decisions on their own. In these instances, I think a fee-only finance adviser with fiduciary responsibility is the best option. However, way too many people still use their stock broker as their financial adviser.

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avatar Jude Boudreaux

I guess this is our challenge as an industry, but it’s one that we have created for ourselves.

Financial planning is not the same as managing money.

I can see from the comments here that is what the general consensus is, but normally you meet with a planner, they ask you a few questions, and then they try to sell you some investments. It’s just how it goes.

Give a fee-only planner a chance. Don’t go to somebody for a free plan. When is the last time you really got something for free that was worthwhile? If the plan is free, I can guarantee you the implementation is not and that’s what they’re after, not to mention the decision errors we make about “free” things (see Dan Ariely’s great work on this area for more info).

You’ll have to pay for a fee-only planner to help you create a financial plan, but good counsel is almost always worth it.

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avatar Thomas Venner CFP

[comment removed by request of author]

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avatar Jude Boudreaux

Thomas, you can’t possibly think that being “fee based” takes the conflict of interest question out of the mix.

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avatar Thomas Venner CFP

[comment removed by request of author]

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avatar Jude Boudreaux

Thomas,

Commission based = commissions
Fee Based = fees + commission.
Fee Only = fees

Also, to suggest that this eliminates conflicts of interest suggests a lack of understanding of that topic. You get paid to manage a client’s investments. What if they want to sell those investments to buy a house or start a business? Your pay goes down, and clients have to weigh that conflict when weighing your counsel.

I’m not suggesting it’s not possible to give appropriate advice while conflicted, but as an industry we need to stop acting like conflicts don’t exist. All models have them.

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avatar Thomas Venner CFP

[comment removed by request of author]

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