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.
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.
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.
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.
Updated June 24, 2016 and originally published April 6, 2011.