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.