Ever since our previous financial planner changed firms a couple of months ago, I’ve been debating how to proceed.
I could go the DIY route. Suze Orman, in this column, states that most people really don’t need a financial planner. And in fact, I did switch some of our money to a mix of low-cost index funds – a move that I probably should have made years ago. The more I read about the ways in which actively managed funds (which our advisor had us in), do nothing to boost return while still socking you with hefty fees, the further I want to stay away from them. And, I’m fairly comfortable with our ability to choose an appropriate mix of investments.
At the same time, part of me likes the idea of working with an outside expert who can review our financial decisions, and bring us insight and ideas (solid ones, not get-rich-quick schemes) we might not come across on our own. I also view a good financial planner as an independent voice who could (hopefully) talk us out of any really foolish decision – like cashing in our retirement funds for a high-flying real estate scheme – that might tempt us. I don’t think we’re particularly susceptible to such stupidity, but we’ve made our share of money mistakes. The older we get, the less I want to risk that.
With that in mind, I’m going to at least look for a new financial planner. My husband and I already met with one firm, and have the names of a few others. Before we sign on the dotted line, these are a few of the things I’d like to know:
a) How do you get paid? My preference is a fee-only planner, who charges just for his or her expertise and the work of putting together a plan for our retirement savings and reviewing the kids’ college funds.
A fair number of planners earn their keep this way. I can go to the website of the Financial Planning Association, type in our address, and get a list of several dozen within about a 20-minute drive. However, some work only with clients who have a certain amount in investable assets. For some planners, the minimum is seven figures, which puts them out of our reach, at least for now.
In any case, I’ll definitely want to know if he or she will make more money if we invest in certain investments, or if the firm recommends products that are provided by an affiliated company.
b) What sort of approach to financial planning do you take? I’m not sure if I’d actually ask this, or just try to pick whatever vibe he or she might be giving off. First, I’m looking for integrity and honesty (I can’t help but be suspicious that anyone in this field could be another Bernie Madoff in the making), a realistic outlook (I know the market will go up and down, and don’t want any guarantees of certain returns) and some interest in our lives (if we’re going to be in this for the long haul, I’d like to enjoy working together).
b) What experience, degrees, and certifications do you have? I’d like our planner to have a solid track record in the field, and have been around long enough that he or she has a realistic view of just what the markets and investments can do. I don’t think any specific degree is necessary, but would like to know he or she has made it through college. A certification also is appealing, since I think it shows that the planner is committed to this career, and has studied a range of personal finance topics, such as investments, taxes, retirement planning. Certified Financial Planners (CFP) also pledge to adhere to a code of ethics. While this is no guarantee, it shows the planner has at least thought about the subject. CFPs also need to register with the SEC. I’ll check that he or she has, and ask to see what’s known as ADV Form, Part II.
c) What sorts of funds do you use? They definitely need to include low cost index funds in the mix. If it’s all high-priced proprietary funds, I’m out of there.
d) Where will our investments be held? Again, visions of Bernie Madoff come to mind. As this blog post by Marc Freedman, a CFP, makes clear, you never want to write your checks directly to the financial planner. Instead, our investments should be held by an independent custodial firm that is audited by the Securities and Exchange Commission and the Financial Industry Regulatory Authority, or FINRA.
e) Have any disciplinary actions been taken against you? Actually, I probably don’t need to ask this, as I can check this online, at the FINRA website. FINRA stands for Financial Industry Regulatory Authority; it is an independent regulator, overseeing securities firms that conduct business in the United States. Using FINRA’s BrokerCheck capabilities, I can check the backgrounds of about 850,000 current and former brokers who have registered with FINRA. The information comes from forms the brokers and brokerage firms provide when they register with and become licensed.
At this point, I should have a pretty good idea whether a particular financial planner is a good fit for us.
What about you? What’s been most important to you as you’ve looked at financial planners?