How to Choose a Financial Planner

Jared Defore, CFP®, CPA/PFS
05.06.21

There are a few kinds of decision makers when it comes to hiring a service:

  1. Researcher
  2. Ask a friend
  3. Combo of #1 and #2

You know which one you are. Hopefully, this article can serve as a good starting point for any of the three when trying to find a financial planner.

Before you begin searching the internet for financial planners or begin asking your friends about them, below are some things to consider.

#1 - Qualified Financial Planner

Make sure to find someone who is qualified. The gold standard qualification for financial planning is the Certified Financial Planner™ (CFP®) credential. Individuals who have obtained this credential meet rigorous education, experience, and ethical requirements to provide you with assurance that a level of competency and ethics have been met.

A CFP® professional is required to act in a client’s best interest. Some other certifications worth noting but that are lesser known are the Chartered Financial Consultant (ChFC®) and a Personal Financial Specialist (CPA/PFS).

#2 - Preference of Comunication

How do you want to interact with your financial planner? Do you prefer meeting in person, virtually, or a hybrid approach? The COVID-19 pandemic has forced many financial planners to adapt to technology faster than they otherwise would have.

Along with meeting in person, now many financial planners offer a virtual or hybrid experience. So, if you live in a busy city where commutes can be time consuming, meeting virtually may be appealing more than ever.

#3 - Serves Your Situation

Like many professions, some financial planners can be generalists, and some can be specialists or specialize in specific life circumstances. Your situation may dictate who is the right financial planner for you. Credentials alone do not mean that the planner is the right fit for your personal situation. It’s important to also make sure they can serve your specific needs.

For example, if you’re a woman who works in the tech space, you can probably find an advisor who specializes in working with individuals like you. If you’re a small business owner who is about to sell your business, you can find a financial planner who specializes in that situation. If you’re a young professional with a growing family, you can find someone with that experience as well.

#4 - Personality Fit

Working with a financial planner should be a mutually committed relationship which involves sharing information with them that you have not shared with anyone else before. It’s important to make sure that person is someone who you can relate to and who you feel will provide guidance that you can trust. If you do not feel like you can open up to that individual, then they are probably not the right fit for you.

Beginning Your Search for a Financial Planner

Now that you understand the type of financial planner that you’re looking for, it’s time to begin the search. You can start however you like by searching the Internet, asking a friend, or a combination of the two.

If you want someone local, it could be as easy as searching “financial planner near me” on an online search engine like Google. Using the 4 criteria above, you can vet those who show up in your search before reaching out to them. Google is such a powerful search engine that you will find many financial advisors to choose from. Searching that phrase is a good starting point, but it’s just that: a starting point. Similarly, if someone recommends a financial planner to you, browse their website to get a feel of if they are someone you think you would like to work with.

If you would like to explore beyond the area in which you live, here are a few financial advisor specific search engine websites that can help you narrow down your list.

It is best to gather of list of potential financial planners to work with and schedule a call with them to speak with them personally and see if it’s a good fit for both parties. I would recommend talking with a few. These meetings will probably last 30 to 60 minutes.

Below is a list of questions to ask to those financial planners who you have decided to speak with.

1. Are you a fiduciary at all times?

A fiduciary is someone who is required to work in your best interest. Any conflicts of interest that are present should be presented and disclosed.

2. How many clients do you serve?

The work of a financial planner can be very intensive. A typical financial planner can effectively serve approximately 75-125 clients . Of course, how many clients a financial planner can effectively serve depends on the areas they specialize in, the size of their staff, and the overall complexities of their clients. If the financial planner says they serve a few hundred clients by themselves, you may want to consider if you’re going to get the attention you deserve from them.

3. Have you worked with someone in my situation before?

Asking a financial planner if they’ve worked with someone in a situation similar to yours is another way to run them through your criteria and make sure that everything checks out. Their website or brochure may say they have expertise in working with people like you, but this is a chance to ask them directly and let them explain how they have handled similar situations.

4. Can you give me an overview of your financial planning process?

There is a process to financial planning that includes a lot of data gathering, followed by asking you what’s important to you. Once the financial planner gathers all of your pertinent information to be able to see your financial picture and also understands what you want to accomplish, they will spend time analyzing your situation and then schedule a meeting to review everything with you and provide recommendations with action items.

5. Have you experienced a market downturn? How did you handle it?

A financial planner’s answer to how they have handled a market downturn should provide you confidence when you go through another downturn in the future. (There will be another market downturn in the future.) It’s important to find a financial planner who will be responsive and help you work through any emotions that you might have during a stressful situation like this.

6. How do you continue your education?

A CFP® professional is required to obtain a minimum of 30 hours of qualifying continuing education every 2 years. However, a financial planner should be able to tell you other ways they stay on top of the ever-changing environment of financial planning considering that the field deals with a lot of tax and estate planning laws that can change from year-to-year.

Additionally, many good financial planners follow industry experts to learn from their expertise and insights. A secondary question regarding education may be to ask if they follow Michael Kitces. If they don’t know who that is, then I believe that’s a red flag. Michael Kitces and his team provide industry leading content to help financial planners.

7. How do you get paid?

This seems like a simple question, but it’s more convoluted than you may think. There are a few different ways a financial planner can get paid.

  1. Fee Only
  2. Fee-Based
  3. Commission

A fee only model can work in a few different ways. First, a fee only approach to billing clients could be by charging a percentage of assets under management (AUM). This just means that the financial planner will calculate their fee as a percentage of the assets they manage for you. This model helps align the financial planner with the client. As account values go up, the fee goes up. As account values go down, the fee goes down.

Another fee only model is charging a fixed fee. A fixed fee is a flat rate that the client can expect annually without any changes throughout the year. Fixed fee and AUM approaches to billing clients are two of the most common fee only models.

Before I jump into the fee-based model, I’ll first talk about the commission model. This model is more transaction based. The financial planner collects a commission when you purchase an investment or other financial product such as life insurance or an annuity. Also, unlike a fee only model where fees are paid solely by the client, the financial planner may collect commissions paid by third parties for the products they sale.

Lastly, the fee-based model is somewhat of a combination of the fee only model and commission model. Each financial planner may have a slightly different fee-based model, but broadly, they may provide financial planning services and also have license to sell insurance and collect a commission on the sale.

We believe fee only is the best model because it eliminates the greatest amount of conflicts of interest among those models discussed. It’s very important for your financial planner to be transparent to you about how they charge their clients and how they are paid.

8. What’s your investment philosophy?

When meeting with a new financial planner, it’s important to understand how they invest and if it aligns with your values, goals, and risk tolerance. Everybody’s circumstance is different, which is why there shouldn’t be blanket approaches to investing. Have the financial planner describe to you how they would invest your money and how it might relate to your circumstances. There is no guaranteed outcome when it comes to investing. You should always understand how your money is invested so you can understand the potential outcomes.

Now Go Out and Find A Financial Planner That Fits You

Hopefully now you have a better idea of how to find a financial planner and what are some good questions to ask when you sit down with them to see if they are a good fit.

At Market Street, we believe we are doing the things above to be a firm that can serve many different kinds of clients. If you are reading this and learning about Market Street for the first time, check us out on our website (https://marketstreetwealthadvisors.com/) and be sure to read the bios of our team members to find someone who you think you might enjoy working with.

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Wondering if Market Street might be a good fit to help you with your financial needs? Give me a call today to speak about your personal situation!

Jared Defore, CFP®, CPA/PFS
Financial Planner

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