RSS | What is RSS?

Posted August 30, 2010

How to Screen a Prospective Financial Planner

Last year's headlines have not been great for the markets, individual investments, or for that matter, the track record of some financial planners.

Yet, according to the 2008 Financial Planning Association® (FPA®) and Ameriprise® Value of Financial Planning Study, individuals who manage their money according to a financial plan not only feel they have a clear financial direction, but they are statistically most likely to save more than 10 percent of their gross income, giving them the best chances for overall financial security.

But, if you've never met with a financial planner or if it's been years since you visited one, there are some important questions you should ask during screening and selection:

What training do you have?

Find out how long the planner has been in practice and what kind of certifications they hold. What is their experience? Did they have to pass an exam that tested their ability to apply financial planning knowledge? Do they have to abide by a code of ethics? Have they had any public disciplinary actions taken against them?

What services do you offer?

What a financial planner offers is based on credentials, licenses and areas of expertise. Generally, financial planners cannot sell insurance or securities products such as mutual funds or stocks without the proper licenses, or give investment advice unless registered with state or Federal authorities. Some planners offer financial planning advice on a range of topics, but do not sell financial products. Others may provide advice only in specific areas such as estate planning or on tax matters. If you're talking to a planner who would actually manage your money, it's likely that they're registered with the Securities and Exchange Commission (SEC) because firms managing more than $25 million dollars must register with the federal agency. For less than $25 million, money managers have to register with their state securities agency.

How do you charge for your services?

Professional planners will provide you with a financial planning agreement that spells out the services they provide and how they'll be compensated. Payment can happen in one of several ways:

• Salaried planners are actually employees of a firm, and you help pay their salaries through fees or commissions you agree to pay.
• Direct fees to the planner through an hourly rate, a flat rate, or on a percentage of your assets and/or income.
• Commissions paid by a third party from the products sold to you based on the planner's recommendations. Commissions are typically a percentage of the amount you invest based on those recommendations.

• A hybrid of fees and commissions based on services. A planner may charge a fee for designing a comprehensive financial plan and occasional visits and calls to review it, while commissions might come from products they sell that you invest in. (Planners may offset some fees in exchange for commissions.)

How do you feel about teaching and training?

One of the primary benefits of having a financial planner is education about the moves you are making or may potentially make. Don't view a planning relationship as tossing someone your finances so you won't have to deal with them anymore. As long as you're paying for their services, make sure you get long-term education out of it.

What should I bring to my first meeting?

When you select a planner, they'll give you a list of documents and information to bring in for your first meeting, and generally, it will be called an income and expenditure checklist. You'll need to bring in or detail:

Income

• A current pay slip
• Profit and loss statements for business income
• Pension income statements
• Statements of non-investment income
• Family trust distribution documents
• Tax returns
• Annuity, maintenance agreement statements

Expenses

• Home: Mortgage, rent statements, utilities, household repairs, insurance, appliance purchases, landscaping or house cleaning
• Transportation: Gasoline, car loan, public transit expenses and parking
• Food: Grocery and restaurants
• Medical: Doctor, dentist and prescription bills
• Education: Tuition, school fees
• Child care: In-home or outside-the-home care
• Personal grooming: Clothing, shoes and accessories, hair, makeup
• Pet care: veterinarian, food and grooming bills
• Insurance: Health, life, auto, disability

An asset and liability checklist: This is a summary of what you own and what you currently owe. You'll need to bring or detail:

Assets:

• Principal residence
• Vacation home
• Investment property
• Bank accounts
• Investments
• Collectibles and personal property
• Automobiles, other vehicles

Liabilities:

• Mortgages
• Credit card debt
• Auto loans
• College loans
• Business loans

Past Tips

Get past tips about financial planning.