While there are multiple guides online on how to find a qualified financial planner, here are a few steps I’d personally follow when choosing to work with a professional.
This should be the starting point on everyone’s search. While there are over 200 professional designations in the financial services industry, the CERTIFIED FINANCIAL PLANNER™ designation is unmatched when it comes to academic rigor, continued education, and ethics requirements. It still remains the single, most universally recognized designation to represent the financial planning industry. There are nearly 340,000 financial advisors in the United States yet only 83,000 are CFP® Professionals. Simply following this step will refine your search quite a bit. However, please note a CFP® Professional is not prohibited from accepting commissions.
There are only three ways an advisor can be paid: commission-only, fee-only, and fee-based (combination of commissions and fees). Because commission-only and fee-based advisors can accept commissions from insurance and investment products, they could have a potential conflict of interest; this lacks transparency for the client. Your advisor should be planning-centric not sales-centric.
A fee-only advisor sits on the same side of the table as the client. Their sole source of compensation is through mutually agreed upon fees. Fee-only advisors are obligated to act in the clients best interest. Commissioned advisors may say they are acting in a fiduciary capacity, but as long as their income comes from the product and not from the client, they are not true fiduciaries.
Make sure your advisor is a real financial planner. All financial planners are financial advisors. However, not all financial advisors are financial planners. You may see titles like “investment specialist”, “investment consultant”, “investment counselors”, or “financial representative”. Most likely these are advisors focused primarily on investments or product sales. Look for an advisor who takes a holistic approach encompassing your entire financial life. While investments play a crucial aspect in financial planning, it is simply just one aspect out of many moving pieces.
Actual Human Advisor
Make sure you are meeting with an actual human not an online “robo advisor” or online questionnaire. Financial planning is deeper than a few risk tolerance questions that shoot out an investment allocation. And your life cannot be boiled down to an algorithm. Everyone has unique values, goals, and different relationships with money. For one, robo services do not provide genuine, holistic financial planning. Life can change quickly and planning for the certainty of uncertainty is not something to take lightly.
One of the biggest value-adds of developing a long-term relationship with a financial planner is setting goals, learning about your values, and defining the life you want to live. These are qualities that cannot simply be automated.
A financial planner cannot be a generalist serving everyone’s unique needs. Your financial planner should be an expert in a specific market or demographic. There is a difference between common and specific financial problems. Anyone can solve a common financial problem such as building a diversified portfolio. However, a niche-specific problem, like maximizing your employee stock options in a tax-efficient manner, requires a deep degree of specialization. In order to optimize your client experience, look for an advisor who works primarily with people like you.
There are many routes an individual can take to build an investment plan. Using one fund family over the other really has a marginal impact. A holistic planner should understand the true drivers of portfolio growth, which are saving and investment behavior. In fact, saving and investing behavior accounts for 87% of portfolio growth. The other 13% of portfolio growth is attributable to market timing, asset allocation, and investment selection. Run away from an advisor who claims they can outperform the market. Outperforming the market consistently over time implies the ability to predict the future. The work of financial planners is not about outperforming the market or chasing performance, rather it is helping people prepare for their futures.
The best financial planners live and breathe this industry. They find their work meaningful and impactful. They should be well-connected through professional organizations like NAPFA, XY Planning Network, or Fee-Only Network. And lastly, they should be lifelong learners always looking to sharpen their skills. Next time you're meeting with an advisor, ask them what organizations they participate in, what continued education courses they are most excited about, and what they like best about their career.
A financial planner may not always have the answer. Part of your plan may be beyond their scope of expertise. This may include drafting a will, obtaining a business loan, or filing taxes. In any areas of uncertainty, your advisor should work collaboratively with a specialist.
If you’re looking for a fee-only CFP® Pro that works with young professionals and their families visit our website to learn more.
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