Choosing a Financial Advisor

Deciding if you require a financial planner, stockbroker, insurance agent, or CPA for your needs requires some thought. There is no one answer. You may already have trusted professionals you are working with and just need to fill in some gaps. Maybe you’re handling the investing yourself, but need someone to help determine if you’re saving enough for retirement. You may want a comprehensive plan by a generalist who will act as the quarterback and call in specialists as necessary. Or you may want to choose a specialist and act as your own quarterback.

As you can see, before you begin doing homework on the particular professional you’ll use, you must understand what your goals are. Do you need a place to put the investments you have already researched? Do you need help with your estate? Are you struggling with cash-flow and debt issues? Wondering if you can afford to retire? Want to save some money so your kids can go to college and support you for a change? Did you get a large inheritance or win a jackpot and need guidance on how not to just blow the money? Are you worried about too high a tax bill? Is it life, health, disability, long-term care, and other insurance needs that keep you up at night?

Start by examining what you think you need help with.

In the world of financial planning there are many designations used, but there are three that I hold in highest regard. The first is the one I carry, Certified Financial Planner (CFP®). The other two that earn my approval and respect: the Personal Financial Specialist (CPA-PFS), and the Chartered Financial Consultant (ChFC). Each require formal education, testing, experience in order to be licensed, as well as a commitment to continuing education to stay licensed.

You can find more information on all of these online. The CFP Board website includes the CFP certification requirements (at www.cfp.net/learn/knowledgebase.asp?id=11), as well as a way to find a Certified Financial Planner in your area (www.cfp.net/search/). The American Institute of CPAs (www.aicpa.org) has an overview of the steps CPAs can take to get the Personal Financial Specialist Credential (http://tinyurl.com/CFPPFS11) and where to find one (http://tinyurl.com/FINDCFPPFS). Finally, for information about Chartered Financial Consultants, go to www.chfchigheststandard.com.

To me, each has their own “flavor”. I find that many Certified Financial Planner (CFP) practitioners tend to come from a background in the investment field, or from some of the college programs specializing in financial planning. The Personal Financial Specialist is actually just part of the title: the full one is Certified Public Accountant-Personal Financial Specialist (CPA-PFS). And as you might suspect, CPA-PFS holders have a certain tax flavor to them. On the other hand, Chartered Financial Consultants (ChFC) often come out of the insurance world.

Those flavors don’t make one better than another, but do give you some indication of who you might want to shop for first. If you are mainly interested in investing or general financial planning, then maybe the CFP matches you best. Have issues centering more on taxes? Then the CPA-PFS should be on your short-list. Have general needs, but specific problems in the area of insurance? I’d consider holders of the ChFC.

That all said, any one of the three can handle most any of your issues, depending on the specific expertise of the advisor. So, just because they may lean toward a certain “flavor,” their tastes are influenced by their individual qualifications. Because of this, I wouldn’t limit myself to considering just one designation.

Assuming you’ve done your homework and know what kind of help you are looking for, ask the potential advisor what experience they have in that area of personal finance. They may sound qualified, but if they have never worked on a case like yours, you don’t want to be their guinea pig.

Ask them their qualifications, what it took them to earn those qualifications, and how they maintain their level of expertise. There are many titles and designations that have no requirements other than working long enough at a particular company, or sending in application and a filing fee, sitting through a few hours of a workshop, or passing a very simple test.

Do you want to work with the type of person sitting in front of you? There is no truly wrong answer to this one. Some offices, like mine, will have a single advisor as your specific point of contact. Others employ a team of people. And some will hand you off to whoever has the specific expertise you need at a particular time. All of these setups work—you just need to be aware of it before you hire them.

Ask, “Have you ever been disciplined?” No, we’re not worried about the spanking they got when they wrote on the upholstery with crayons, but rather whether any of the professional organizations or regulatory agencies they are licensed under have ever found them less lawful or ethical than you’d like. And don’t take their word for it, check it out yourself.  The SEC has information and links to direct you to important information about brokers and investment advisors at www.sec.gov/investor/brokers.htm.

Oh, before you leave you probably want to find out what they’re going to cost you.

In Washington, there’s a lot of discussion about something called a fiduciary standard. A fiduciary is required to act in the best interest of clients, something the proponents of the standard say should be more important than bigger advisor paychecks. Only a subset of financial advisors is required to act as a fiduciary. The rest are held to a lower suitability standard, where advisors ensure their recommendations are suitable to your situation even if they feel another course of action is better for you.

Personally, I think you should request that they, in action, act as a fiduciary. But that’s up to you.

Either way, one last question you need to ask your prospective advisor: “How do you make money from me?”

Be especially observant on how they answer this question. If the advisor gets fidgety, defensive, or side-steps your question, keep asking. If you hear, “I don’t cost a thing,” keep prying until you can trace how money makes it from your hands to theirs. Trust me. None of us works for free.