Finding the Right Financial Planner

Market losses and chaotic market behavior increase the need for accurate and unbiased retirement and financial planning advice. Tax rates will have to sharply increase to pay for recent government rescues and bailouts.  Baby boomers and others seeking to accumulate and preserve wealth will adjust their financial goals and reconsider present and future money strategies and tactics to achieve those goals. Many people will look to financial planners and advisers to assist.  My thoughts are intended to eliminate planners and advisers who have conflicts of interest or who have questionable backgrounds.

Use a Fee-Only Financial Planner

Most of the “advisers” looking for your business are employed by a company that sells financial products, such as insurance companies, securities broker-dealers, and banks.  I would cross these candidates off your list immediately.  They have an inherent conflict of interest because at least part of their compensation is based on what they sell you.  Most of their time and energy will be spent on selling you, not advising you.  The best strategy for selecting a financial planner is to avoid anyone who sells or brokers financial products.

A second category of financial planners are those that claim to be “fee-based.”  These folks charge a fee that is based on a percentage of the dollar value of assets they are managing.  I would avoid this group of candidates as well, for two reasons.  First, these advisers also have a conflict of interest because they benefit if you transfer assets to them for management.  That automatically increases their fee.  You might receive advice to liquidate assets and re-invest with them in ways that are not in your best interest.  Second, with the low returns available in today’s markets, it will be expensive in the long run to surrender 1%-2% of your returns to your planner, year after year, as a fee.   This management fee is in addition to any management fees associated with financial products that you purchase.

How to Find a Fee-Only Planner

The third category of financial planner is a “fee-only” planner.  A “fee-only” adviser will charge you an hourly fee (or sometimes a flat-fee) for providing advice.  A fee-only planner does not make any money on commissions or kick-backs.  They don’t sell anything except their time. There are no conflicts of interest because the adviser does not make any more or less money regardless of what advice is given or what actions you take in response to the advice.  There are two easy ways to find a fee-only planner.  Members of The Garrett Planning Network are required to be hourly fee-only. They must also commit to provide services to clients without any required minimums as to income, assets, net worth, length of engagement, or revenues generated.  You can visit the Garrett Planning Network website and use its online locator to find a planner in your area.

A second easy way to find a fee-only planner is through the National Association of Personal Financial Advisors (NAPFA). NAPFA advisors meet minimum training credentials, must be fee-only, and cannot be employed by a financial services firm that sells investment products.  This provides reasonable assurance that you will receive unbiased advice.  The NAPFA web site has a directory for locating a fee-only advisor in your area.

Perform an Advisor Background Check

The financial planning business is not well regulated.  In most states anyone can hang up a sign and call himself a financial planner or adviser.  Some planners and advisers are outcasts from financial services industries that are regulated.  You want to be sure that the person you are considering does not have a record of being disciplined in an earlier position.  There are several different ways of running a background check on your proposed adviser.

The Central Registration Depository System (CRD) is a database of information about stockbrokers and brokerage firms.  Look to see if the CRD database has information about the adviser you are considering.  You cannot access the CRD database yourself but your state securities regulatory authority can do it for you.  To find the CRD contact in your state, use the North American Securities Administrators Association site. Use that contact information to request a CRD background check for the planning candidate you are considering.

You should also check for background information about an advisor (and his or her firm) using the Financial Industry Regulatory Authority (FINRA) site.  FINRA offers a BrokerCheck database that you can access online.  Your advisor may not be listed but you will want to find out and then see what is there.

Finally, you should access the Investment Advisor Public Disclosure online database published by the Securities and Exchange Commission.  You can search by the name of the firm that the advisor works for or previously worked for.

Update 1: I recently learned about a new site called “AdvisorCheck.”  This site makes the following claim:

AdvisorCheck provides consumers with unbiased information to promote honest practices by advisors in the financial services industry. We run a comprehensive series of background checks to promote security for the relationship between the advisor and the client or prospect

It appears that advisors have to pay a fee to be listed in the site.

Update 2: If you have been with your present financial advisor for at least three years and are willing to pay $500 to evaluate his or her performance, a new “Evaluate My Advisor” site will help you do that. Although $500 may sound like a lot of money for this job. don’t overlook the fact that you are probably paying thousands of dollars in fees each year to get what you hope is top quality advice.

Final Thoughts on Locating a Fee-Only Planner

By limiting your search to fee-only professionals, and by performing a background check on your candidates, you will increase the chances that your will receive objective advice.  The steps that I have described will help narrow your search to those professionals who can do the best job for your financial and retirement future.

Image Credit:  ThatMushroom

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