Typically people seek the help of a planner when they don't have the time, know-how, or desire to do create their own financial plan. In its 13 February 2006 issue, Newsweek featured a great article by Jane Bryant Quinn called “Money Guide: How to Pick a Planner”.
Even if you do most of the work yourself, you may want to check with a planner to be sure your plan will work as you intended. Some planners will use sophisticated probability calculations to determine your likelihood of achieving your goals when you are invested in markets that fluctuate. Market ups-and-downs can have a significant effect on your chances of success if you are making monthly or yearly contributions to long-term investments. By monitoring your probability of success, you can reduce the likelihood of over- or under-planning. Under-planning results in the need to make sacrifices in the future, while over-planning leads to making unnecessary sacrifices now.
Planners can also make recommendations and give advice on how to implement your plan. It is important to be mindful of potential conflicts of interest when recommendations could also stand to benefit the planner. Some planners simply do the planning and leave the implementation up to you while others will take an active role in implementing your plan.
Before hiring a planner to help you, you should first determine how much help you want or need. The more financially literate you are, and the more you're willing to do on your own, the less you should expect to pay a financial planner. Consider the value or benefit you are getting for the cost, and ask yourself if you are better off putting the money into your savings account than paying it to a planner. Planners typically charge for their service using one of the following methods:
- By the hour (best if you need minimal help)
- By the project (best if you need specific help in a single area)
- On retainer (best if you want ongoing help)
- As a percentage of assets the planner is managing (caution: this one has a built in conflict of interest)
Most planners will offer a free initial consultation. The purpose of these meetings is for you and the planner to learn about each other, not to solve specific problems. Use this opportunity to grill the planner. The Certified Financial Planner Board of Standards has 10 questions you can use as a guide to interviewing any planner. It is good idea to interview at least three planners, and to check for any disciplinary history at the following sites:
- Certified Financial Planner Board of Standards, Inc. (888-237-6275)
- North American Securities Administrators Association (202-737-0900)
- National Association of Insurance Commissioners (816-842-3600)
- National Association of Securities Dealers (800-289-9999)
- Securities and Exchange Commission (202-942-7040)
It is important to be aware that the term “financial planner” is not regulated and anyone may call themselves a financial planner. However, CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioners are regulated, and must agree to abide by written standards of practice and a code of ethics set forth by The Certified Financial Planner Board of Standards.
You can search for a CFP® professional by zip code and/or specialization using the Financial Planning Association's PlannerSearch website. The Garrett Planning Network has a searchable directory of financial planners that charge by the hour. The National Association of Personal Financial Advisors will refer consumers to specific planners in their member network.
For a financial planner to give investment advice they must also be a registered investment adviser (RIA). RIAs are required to always place client interests ahead of the advisor's own interests; whereas, stockbrokers (even the ones calling themselves advisors or that have “CFP” on their business cards) do not have that same obligation and are often required to place other interests first as a condition of their employment.
Unfortunately, consumer protections when it comes to investing and other financial maters leave a lot to be desired. Ask questions, read the fine print, assume nothing, and caveat emptor (“let the buyer beware”).