When you know what you want, you’ll be better able to evaluate a prospective planner’s ability to respond to your needs.
Ask friends or colleagues for names of planners they've found helpful. Your accountant or attorney may also be excellent sources. Call some of the lists below for names of qualified advisers in your area. Pose these questions to candidates before making a final decision.
- How are you compensated? Financial planners generally make their money in one of two ways. Commission-based planners profit only when they sell you financial products. Fee-only planners are paid for the advice they give you, not on any products they may advise you to purchase. Many experts, including personal finance guru Jane Bryant Quinn, warn against commission-based planners who may do less planning and more selling and are likely to recommend the highest-commission products going.
Some planners work on a combined fee-commission plan, but this arrangement can still present a conflict of interest since they will make money through their sales commission whether or not you make money through the investment. Make sure you understand exactly how the planner's fees will be calculated and whether you will make a one-time payment or will be charged periodically. - Do you have a resume or printed handout describing your professional background? You should review this carefully to make sure the planner is really a planner and not an insurance agent trying to sell you a policy or a stockbroker looking for commissions on sales
- What are your professional credentials? There is no such thing as a license to practice financial planning, and no credential guarantees competence or special talent for investing. But certain letters after a planner's name ensure that he or she has met specific standards (see below). Also find out where the person went to school and what she majored in. You don't have to rule out English or biology majors, but a background in accounting, finance, business, or law might be more reassuring.
- Are you registered with the SEC? Every planner must be registered as an investment adviser with the Securities and Exchange Commission. A yes to this question is a basic requirement.
- May I have your CRD number? The Central Registration Depository is maintained by the National Association of Securities Dealers (NASD). When you have the CRD number, call NASD to request a free report on the planner's licensing and employment background and possible disciplinary history. The number is 1-800-289-9999. Or review this history yourself at www.nasdr.com.
- How long have you been in business? Your money and your future are on the line. Don't put them in the hands of anyone who's new to the business. Hire a planner with at least ten years' experience. This increases the likelihood that you'll be working with a seasoned professional who has seen the stock market go through a few cycles. You can double-check these answers through the NASD (see above).
- What is your investment philosophy? You want to know how this person makes investment decisions: What is her idea of a balanced portfolio? Does she lean more toward certain instruments-stocks, mutual funds, real estate, etc.? What does she think are the most significant factors in assembling successful portfolios (market timing? luck? past performance?)? If you don't understand this answer completely, ask for clarification. If you still don't understand, this adviser's not for you.
- How do you choose the products you recommend? Does the planner personally research everything he recommends? Does he require a certain track record for an investment before he recommends it?
- Do you specialize in certain professions? Some planners focus their practice on entrepreneurs, physicians, teachers, upper-income families, and so on. Depending on your profession, you may be better off with someone who has experience working with people like you.
- May I have names and numbers of five clients with whom you've worked for at least three years? When you phone the references, ask what the planner has done for them and whether results lived up to their expectations. Compare their experiences to the claims the planner has made to you. Do not even consider a planner who can't or won't give you references of current clients.
- Will you base your planning for me on my personal circumstances? You shouldn't settle for a generic financial blueprint. You want someone who will gather complete information about your financial situation, spending habits, and long- and short-term goals. These details are critical to obtaining a plan you can live with.
- How often will we meet to discuss my financial situation? There is no correct answer, but if the planner is overseeing your entire portfolio, quarterly progress meetings are a must
- And ask yourself: Is this person easy to talk to? A good listener? The planner you choose will be learning some fairly personal things about you. Not only will she know your annual income, your net worth, your dreams for your children, and your plans for retirement, she may also become familiar with your spending habits, your (and your spouse's) attitude about money, and other potentially emotional topics.
