Hiring a financial planner is one of the most important steps you can take with your finances. The right person can be an invaluable asset to your efforts to build wealth for yourself and your family. On the other hand, shows like CNBC’s American Greed graphically illustrate what can happen when you trust the wrong person with your money. To separate the pros from the con artists, take the following steps before hiring a financial planner.
BE WARY WHEN THEY STEP TO YOU FIRST
Whether it’s a boiler-room style cold call with a can’t-miss investment opportunity, an unsolicited e-mail, or traditionally mailed invitation to an investment seminar, a person showing up at your church with your pastor’s blessing, or someone at a table set up at a professional conference, keep your guard up when you get an unsolicited pitch to manage your money from a stranger. It doesn’t always mean you should dismiss them out of hand, but you need to check, double-check and triple-check these people before you even think about doing business with them. There is no such thing as over-investigating a person who wants to help manage your money. Bypass anyone who resists or resents your efforts to find out everything you need to know to protect yourself.
In any case, when it comes to hiring a financial planner, it is nearly always better for you to find them than it is for them to find you. Start with getting referrals from friends, relatives, and associates. Once word gets around that you are looking for help managing your money, there will be plenty of people lining up to help you. However, even if someone comes recommended by your most trusted family member, friend, or business associate, don’t just take his or her word for it; confirm first-hand that this person is who and what they say they are—both qualified and trustworthy to help you manage your money. Start by taking the following steps.
CHECK FOR CERTIFICATIONS
Check for their professional credentials. But don’t just accept any combination of letters after their name. Look for the hard-to-get acronyms, including CFP for Certified Financial Planner and ChFC for Chartered Financial Consultant.
These certifications are valuable because they generally require initial course work and exams, and ongoing education and testing, to earn and maintain them. Those who hold such designations are also usually expected to adhere to a published code of ethics. Other certifications may also be valid, but check to make sure that they didn’t just pay a fee to add fancy-sounding letters after their name.
Check all candidates’ track records with the Financial Industry Regulatory Authority (FINRA.org) and U.S. Securities and Exchange Commission (SEC.gov) to see if any regulatory actions have been taken against them. Check with the North American Securities Administrators Association (NASAA.org) to make sure they are registered with your state’s securities department and check for complaints against them. If the planner sells insurance products, also check his or her track record with your state’s division of insurance.
In most cases, you don’t actually need any kind of certification or formal education at all to do business as a financial planner. However, hiring a financial planner who is not a certified professional makes about as much sense as hiring an unlicensed electrician to work on the wiring in your house. It might seem to not matter much, and may even be less expensive—until everything goes up in flames.
By the way, the time to confirm that a financial planner has these credentials is before you share personal financial information, sign anything, or hand over access to your hard-earned money.
MEETING AND SCREENING THE CANDIDATES
Once you’ve sought referrals from family and friends and checked credentials to narrow down the list of candidates, you’ll want to set up initial meetings with the remaining contenders to interview them and ask key questions. Here’s how to approach these first meetings.
First, I must repeat: Never commit to handing over any money in the first meeting. The planner doesn’t work for you yet; you’re just in interview mode. Pass on any planner who wants to charge you for an initial consultation or who pressures you to buy anything in that first meeting. A planner may sell securities and other products, but they shouldn’t being doing any selling before you’ve actually created a financial plan. Be wary of financial pros who are more focused on the selling than they are on the planning.
Before hiring a financial planner, be sure you understand how he or she expects to be paid for services. Is it by the hour? A commission on transactions? A flat fee? Or some combination of these? Have them put their fee policy in writing. (Learn more about fee structures at NerdWallet.com.)
Check for compatibility. Does this planner have experience with clients like you? If you’re a middle-aged family man trying to secure his retirement, you may not want a planner who is more experienced with young, single high-income professionals who may have a higher risk tolerance than you can handle.
When considering hiring a financial planner, think of him or her just as you would your personal physician. Are you comfortable with being honest and transparent about your finances (often called being “financially naked”) with this person? Does he or she actually listen to you? Are they focused on your goals, as opposed to pressing you to serve a separate agenda? If the answer to all of these questions is not a resolute “yes,” it’s a no.
IF YOU HEAR THESE THINGS, HOLD ON TO YOUR MONEY
WHY YOU’RE HIRING A FINANCIAL PLANNER
Bottom line: When it comes to hiring a financial planner, as with most things, if it sounds too good to be true, it is. Good financial planners can’t work miracles with your finances, but they can—and should—perform the following important services: