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 various professional certifications to help readers start on the right track. This article looks at the research you can do to narrow down your choices, getting you to your initial meeting.

When you select a financial planner, consider it like entering a long-term relationship. If the professional isn’t right for you, you don’t want to waste your time on more than a first date. The best relationship is with someone who understands you — your goals, your situation, your background, your needs, and your desires.

The certification

Just like you have non-compromising criteria for potential spouses, such as religion, political leaning, or sex, you shouldn’t settle for a less than stellar planner who doesn’t meet all of your needs. Start with the certification to narrow down your pool of potential planners.

For overall financial planning advice, the three best designations are Certified Financial Planner® (CFP), Personal Finance Specialist (PFS), and Chartered Financial Consultant (ChFC). Requiring a professional to have one of these three designations narrows the field considerably, eliminating possibly hundreds of individuals who call themselves financial planner in your vicinity.

Even after this elimination, you could have hundreds of listings. A quick search helped me determine that within five miles of Princeton, New Jersey, there are at least 140 Certified Financial Planners, Personal Finance Specialists, and Chartered Financial Consultants. The number would double if I expand the search to fifteen miles.

The personal recommendation

It’s easier to use your social network for recommendations for dates. Your close friends understand your personality and might be able to lead you to someone who would be a good match. I found my dentist and my accountant through recommendations by friends and family, and so far, the recommendations have proven to be good. More people visit dentists regularly than financial planners, so you might have to dig deep into your network to find a quality recommendation.

With a personal referral, there is a good chance that the friend who recommends the professional has had a positive experience — and a positive experience from a friend or family member carries much more weight than a positive experience from a stranger posted on an online review website.

Online evaluation

That doesn’t mean you should ignore information online, however. Before you schedule a meeting with a financial planner, whether recommended by a friend or not, check to ensure their certification is in good standing and they have not had any disciplinary actions. You can find this information on the websites operated by the certification boards — the Certified Financial Planner Board of Standards, the American Institute of CPAs for PFSs, and The American College for ChFCs.

Don’t stop there. The Securities and Exchange Commission keeps records on financial advisers who offer investment services. Find the planner’s Form ADV and read both parts it carefully. This will tell you if the financial adviser is paid by fees, commissions, or both. This is an important issue because you want to ensure that the advice you receive is not influenced by the planner’s own financial gain. A “fee-only” planner helps make that point. A “fee-based” listing, where the planner’s income is partly a fee and partly commission, could be a red flag.

If the financial planner isn’t registered with the SEC, and not every planner needs to be, check with your state to ensure their business can legally operate and does not have any disciplinary actions not already noted by their certification board.

The connection

You can learn much about a person by looking at their online presence. You probably wouldn’t go on a first date without searching the Internet for mentions of their name, and the same should be true about your financial planner. You should find professional results. While online marketing isn’t the final determination of the quality of a financial professional, you might find some red flags. The financial planning firm should at minimum have a website offering business information, but look for the additional steps that planners often take to increase their professionalism online.

• Does the primary planner operate a blog? Planners with blogs are not necessarily better than planners without blogs, but by reading a website updated frequently with information relevant to financial planning, you might be able to determine that they have a passion for their work. Conversely, if you find a personal blog that is not at all professional, and are sure the blog belongs to your financial planner, you might save yourself from wasting your time.
• Is your primary planner published? If your planner has written and published a book 00 not necessarily an e-book, this could be a good sign. If he or she regularly contributes to major publications, there is a good chance the planner has been vetted by editors to be knowledgeable. Again, this doesn’t ensure the financial planner will be the best fit for you, but it’s a good sign.
• Does the primary planner have an extensive LinkedIn network? Like it or not, LinkedIn is the de facto standard social network for online professionals. While LinkedIn recommendations are often worthless, a business professional should ensure that their LinkedIn profile reflects the image they wish to project. On the other hand, if the professional is more active on Facebook, spending most of their free time playing FarmVille, consider whether you want this person to be providing financial advice to you. Anyone is free to do what they like with their free time, but I would consider someone who was concerned with their professional online identity over a planner who didn’t care.

The first date

After you’ve done your research in advance and possibly discussed your financial planning needs via phone and email with a select number of finalists, it’s time to meet in person. Financial planners should offer a free initial consultation. Use this as an opportunity to interview the planner, asking about their code of ethics, fiduciary responsibility, compensation sources, experience, and financial philosophy. You’ll have the chance to describe your situation and determine how well the planner listens and understands your unique circumstances.

The first date with your financial planner is a complicated interaction, and you may benefit from not immediately entering a relationship from the first planner you meet with. When getting ready to involve someone else with your finances, it helps to take the process slowly.

There is more that goes into this initial meeting, and that will be the topic of a future article.

{ 14 comments }

This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals to help readers start on the right track. This article looks at the varied professional designations and certifications.

With a number of organizations granting different types of financial certifications, it’s easy to get lost in a sea of letters. Having initials after your name on a business card helps those you meet know that you’ve been able to pass some type of testing to earn your certification, but the content and extent of testing changes depending on those initials.

The public is generally aware the type of education someone might have when he suffixes Ph.D., M.D., or M.B.A. to his name. There are different requirements for these degrees depending on the institution that awards them, but with professional certifications like CFP®, CFA, and CPA, only one organization administers the certification for each. This way, customers and clients can be sure they are receiving the specific service they require. That depends, however, on the public understanding of the certifications.

The Certified Financial Planner® (CFP) designation is granted by the Certified Financial Planner Board of Standards. In order to become a CFP, an applicant needs to take a variety of courses focusing on overall financial planning and specific areas of finance, pass an examination, have experience in the field, and abide by a code of ethics. Once someone has been granted the certification, he must focus on continuing education and continue to pay license fees. This is the primary designation for financial planners, and if you plan on working with an adviser to help you with your overall financial picture, the CFP certification helps you feel confident that the professional you hire will help you make the best decisions for you.

Chartered Financial Analyst (CFA) is a certification administered by the CFA Institute. The CFA designation is awarded to those who, like Certified Financial Planners, have relevant education and experience. Chartered Financial Analysts are not financial planners, for the most part. The certification focuses on quantitative analysis, economics, financial reporting, corporate finance, and portfolio management. There is nothing wrong with having a CFA on your team of advisers, but their focus is not your total financial package. You’re more likely to find a CFA working for a corporation than for an individual.

Certified Public Accountant (CPA) is a certification granted by the states and territories. There is a standard examination that applicants must past, uniform across all states. The examination is designed by the American Institute of Certified Public Accountants (AICPA), but certification does not require membership in this organization. Like the other certifications, it’s not enough to pass the exam. To qualify, one needs the appropriate education and experience.

In some states, the experience needs to be in public accounting, specifically. Public accounting focuses on what companies or other entities must report about their finances to the public, like annual reports. This may or may not be relevant to your personal needs. When I shopped for a tax accountant for my business, I did not deem the CPA designation to be necessary. If my business were to have shareholders other than myself, or more specifically, trade on a stock exchange, the CPA designation would be more appropriate.

CPAs can also earn an add-on certification, Personal Finance Specialist (PFS). Personal Finance Specialists are CPAs who have had additional training and experience with financial planning. Many who are certified with the PFS designation also have the Certified Financial Planner designation. (He who collects the most letters must win.)

Chartered Financial Consultant (ChFC) is a designation similar to Certified Financial Planner, but the requirements are somewhat different. The ChFC certification requires more coursework, but there is no examination. The coursework focuses on comprehensive financial planning — the type of guidance most households look for when they seek financial advise.

This isn’t the end of financial designations. Chartered Life Underwriters (CLU) are insurance agents, and not necessarily trained to look at a client’s overall financial picture. Certified Investment Management Analysts (CIMA) focus on asset allocation and other aspects of portfolio analysis. There are dozens of other designations, each focusing on a specific area of finance.

The certification is only one part of your evaluation of a potential financial adviser or planner. The existence of the right certification does not guarantee that a professional will be the right match for your needs. For most family financial planning needs, look for the CFP or ChFC designations.

{ 16 comments }