According to Barron’s Finance & Investment Dictionary, a financial planner is a professional who analyzes personal financial circumstances and prepares a program to meet financial needs and objectives. They should have knowledge in the areas of wills and estate planning, retirement planning, taxes, insurance, family budgeting, debt management, and investments.
Practically anyone can call themselves a financial planner since there is no regulation of the title. Even more confusing are the many different designations that planners use these days. Some designations/credentials are very rigorous while others are easy to obtain. In my opinion, the gold standard in the field of financial planning is usually considered the CFP® or Certified Financial Planner.™ This certification requires college-level coursework, 3 years of work experience, a difficult exam, and having a code of ethics signed by the planner. WiserAdvisor has a tutorial covering many of the designations you may come across.
Education and experience is the first place to start when looking for a planner. You should look for at least 5 years of experience or an advanced degree in financial planning from an accredited university. A lot of the information about a planner is available on a form called a Form ADV and is provided to the public at www.adviserinfo.sec.gov (you can also view the Rodgers & Associates Form ADV as a PDF). The form will tell you where the planners are licensed to do business as well as any regulatory issues they may have had in the past. If they are a smaller firm, you may have to visit your states Securities Commission (for PA see www.psc.state.pa.us), and if they are a broker and you can’t find their information there, try the broker locator from FINRA.
It is also important to understand how a planner is compensated because it could influence their recommendations. There are basically three compensation models:
- Fee-only planners’ only source of revenue comes from a flat fee, hourly rate, or a fee based on Assets Under Management. Whatever the type, the fee is disclosed up front and alleviates most conflicts of interest so the planner should be unbiased
- Fee-based is a form of compensation where the planner will get a fee from you and also a commission from the products they sell
- Commission only – this is still the most common form of compensation.
Good financial planners should meet with you on a regular basis. You want to make sure you have good rapport with them. Before you make your selection, schedule an appointment with a few in your area for a consultation to determine if they are a fit for you and your needs.