The role of a financial planner differs from one person to the next, based wholly on circumstances and expectations. Some seek a financial planner to help assist with an unexpected inheritance or prepare for a transition into retirement, while others choose to hire a financial planner as a guide for making better financial decisions day-to-day.
Regardless of your reasons for seeking a financial planner, the value of the planner is found in the progress made towards achieving your goal. Sometimes this includes managing your investments, while other times it may include strategizing employee benefits enrollment or minimizing the impact of taxation.
Understanding the Role of a Financial Planner
Many people confuse the term “financial planner” with other titles in the industry. It’s unfortunate that the industry doesn’t better regulate the use of titles, and it's no wonder why the general consumer gets so confused.
According to the 2019 Financial Trust Survey Report by Personal Capital, “Nearly half of Americans (48%) incorrectly believe all financial advisors have a legal obligation to act in clients’ best interests.”1 With all these titles floating around, it’s helpful to know the differences between each category of financial experts before committing to a long-term engagement.
The article “The ‘Ambiguity’ Advisor: What’s with the Titles?” is a great place to gain clarity on the following professionals:
- Financial Advisor
- Investment Advisor
- Wealth Advisor (Wealth Manager)
- Financial Planner
- Wealth Planner
In summary, financial planners typically specialize in comprehensive planning, combining areas such as investment management, tax planning, retirement planning, estate planning, as well as cash flow and loan management.
There are ways to make sure a planner is qualified to do the work needed for proper asset and wealth management. Here are seven questions that you should be asking when hiring a new financial planner.
Question #1: How Long Have You Been Practicing Financial Planning?
While most planners are qualified, finding someone that you trust with your savings and the future of your financial path is incredibly important. Everyone needs to start somewhere, but finding someone with experience is key.
Take the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation, for example. A CFP® is required to have at least three years of experience, as well as rigorous study and continuous education, to maintain the status of a financial professional.
In addition to the length of experience, it is helpful to inquire on the type of experience the planner holds. Some planners focus primarily on retirement, whereas other planners focus on working with younger families that are still focused on accumulation.
Question #2: What Credentials Support Your Expertise as a Financial Planner?
You should choose a financial planner who possesses the appropriate professional qualifications, and education, to meet your needs. As mentioned before, the role of a financial planner differs from one person to the next and is based on your circumstances and expectations.
A Chartered Retirement Planning Counselor (CRPC®) may be a great fit if you’re preparing to transition into retirement, whereas a Certified Student Loan Professional (CSLP®) is far better suited to help with student loan repayment and forgiveness strategies.
It’s important to align the credentials with your personal goals and objectives. Credentials you may want to look out for include:
- Certified Financial PlannerTM (CFP®) - Specializes in retirement, investing, education, insurance, and taxes.
- Chartered Financial AnalystTM (CFA) - Specializes in financial analysis, asset valuation, and portfolio management.
- Certified Student Loan Professional (CSLP®) - Specializes in student loan repayment strategies, Public Service Loan Forgiveness, and cost reduction.
- Personal Financial Specialist (PFS) - A specialty credential for CPAs who are helping individuals with all aspects of wealth management.
- Behavioral Financial Advisor (BFA®) - A specialty combining financial knowledge with psychology and neuroscience to improve a client's decision-making process.
Question #3: What Type of Clients Do You Typically Work With?
Some financial planners may choose to work with a niche clientele - pre-retirees, doctors, educators, and women are a few examples of broad niches. Some planners go further to target specific markets, such as specific companies, life transitions, or shared personal values.
Alternatively, some planners are more accommodating to helping everyone who meets some general criteria - regardless of age or profession.
Finding a planner who works with others like you is a great way to make sure they will understand your specific needs and be familiar with options available to you.
Question #4: What Organizations Do You Belong To?
Gaining access to client references can be almost impossible with financial planners. Regulators are concerned (rightfully so) that firms would cherry-pick the clients to reference, thus eliminating the objective feedback you’d be looking for.
Also, Regulators require that the financial planning firm obtain acceptance from every client that their name and information can be shared. Client confidentiality is extremely important in the financial industry, and thus providing client names would violate most firm’s privacy policies.
Instead, gain an understanding of the organizations a planner belongs to. Participation in these organizations alone doesn’t replace a strong reference, but it is indicative of the philosophy the planner has around consumer advocacy, volunteerism, and other professional activities.
The following three organizations provide a good starting point of reference, using the author of this article as a base example of participation:
- Financial Planning Association - U.S.-based professional organization that assists members of the public find ethical, objective, client-focused financial planners.
- Certified Financial Planner (CFP®) - CFP® professionals have attained this standard of excellence in financial planning by meeting education, experience, and ethical standards.
- National Association of Personal Financial Advisors (NAPFA) - The country's leading professional association of Fee-Only financial advisors.
Question #5: What Type of Experience Can I Expect?
This is an important question, by which the answer can only be judged based on your subjective preference.
Some financial planners will engage with you once or twice a year, focusing on the bigger picture of planning needs while providing course correction based on market / employment / income / family variations. This type of experience may be favored by some clients, especially those with consistent planning needs with little variability (such as retirees).
Other financial planners make themselves available at all times, providing ongoing support and education around financial wellness, intentionality, and the complexity of life changes.
Experience is also derived from the environment, and tools, that your financial planner will use to communicate with you. Some planners will prefer to meet at the office behind a mahogany desk, while others may provide the experience of convenience and simplicity by leveraging various aspects of technology.
Question #6: How Are You Compensated?
Transparency is important. Make sure your planner explains the fees clearly so you have a solid understanding of what you’re expected to pay, and what services you can expect in return.
Commission-based planners are far less a “planner” than they are a sales professional.
Fee-based planners are allowed to maintain creativity in how they get paid. They may receive a percentage of the assets being managed, a commission from an insurance product they sold you, or both. You know what you’re going to get with a commission-based sales professional, as well as what you’ll get from a fee-only planner, but fee-based planners will always require a bit more interrogation to ensure transparency of fees.
A fee-only financial planner is incentivized to provide advice and service that is in line with your goals and objectives. The only fee they receive is from you, the client. Fee-only financial planners will not receive sales commissions, investment kickbacks, or other forms of compensation for their work.
When it comes to planning for your future, a strong financial planner is an important part of this process. Hiring a trustworthy financial planner is something to take seriously. Asking yourself these questions is an important step towards hiring the right person for you and your family.
If you’ve read this far, it’s likely you’re looking to begin a new relationship with a financial planner. Here are three resources to use to seek out planners in your area:
- The CFP® board's website Letsmakeaplan.org – Provides access to directly seek out a Certified Financial PlannerTM.
- The National Association of Personal Financial Advisors (NAPFA) - Provides a good start to find planners who carry high-level standards and ethical qualifications.
- XY Planning Network’s Find an Advisor tool – Seek fee-only planners by using location, specialty, or keywords that align with your interests.
Please contact Lucid Wealth Planning if you have any additional questions, or anything else regarding financial planning services.
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