When and How To Hire a Financial Planner

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:

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”).

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MoneyChangesThings
MoneyChangesThings
13 years ago

Working with an independent financial planner is a great investment for couples. Finances are a huge source of tension between partners, much of which is undiscussed. Most of us just have the same money disagreements over and over. “he is too cheap” vs “she is too extravagant” or “she is obsessed with security” and “he is irresponsible”. Working with a skilled, neutral outsider you can come up with a plan you can both live with and goals which address each partner’s issues. A very nice side benefit!

Elaine
Elaine
13 years ago

Here’s another reason to use a financial planner: they motivate you to do what you need to do. I basically forced my husband (we weren’t married at the time) to visit one and even though we didn’t like the guy’s recommendations, his constant phone calls and pressure to buy this or that fund finally was enough to urge my husband to do what he needed to do, which was not follow the planner’s advice and instead follow his own instincts. But he would have just procrastinated the decision if the planner hadn’t been involved.

Jeff
Jeff
13 years ago

I was hoping for something on “when” to hire a financial planner as your title suggested. I get hit up by financial advisors and every now and then CFP’s. At my age and with my relitively small about of money, I can’t see why not just do it myself. Afterall, I’m a smart guy with a great career and education.

Duane Gran
Duane Gran
13 years ago

I just want to offer up two technical nits to an otherwise excellent article: 1) When the author says “As a percentage of assets the planner is managing (caution: this one has a built in conflict of interest)” this may not be true. If you are working with a Registered Investment Adviser they have a fiduciary duty to you even when they are paid according to assets under management. Anything potentially resembling a conflict of interest is disclosed in their ADV-II forms. 2) The author correctly notes that an RIA is a fiduciary, but it may help to know that… Read more »

Mama's Money
Mama's Money
13 years ago

IMO, the question of “when” is in any or all of the following circumstances:

1) Early on, to help set up a plan if you either don’t know a lot, or wonder if you have too much money for everything to just sit in an index or money market fund.

2) Every ~5 years to get a reality check on your progress and make sure your asset allocation and risk level is still appropriate.

3) Around major life events, like marriage, having kids, starting your own business, etc.

bigbuddha
bigbuddha
13 years ago

HERE is in my opinion the 4 best tips in picking a good financial adviser. 1. The planner will only initially talk about STRATEGY, as in cashflow management, are your investments or potential investments structured in the most tax effective way, do you have estate planning issues and personal insurance in place 2. The planner discusses how these STRATEGIES, will effect your lifestyle, will sacrifices need to be made or just minor tweaks or enhancements 3. The planner should have appropriate education ie CFP is ideal or at least a long history of being in the industry usually 10 plus… Read more »

Wesley
Wesley
13 years ago

I wish I’d had this advice before I entered into some of the agreements I’m currently bound to. I’m sure most planners out in the market are there to help…unfortunately, I ran into salespeople pushing products early on, and fell into their trap. While I’m not totally dissatisfied with what I ended up with (whole life insurance, disability insurance, etc), I feel like the products aren’t really competitive in the marketplace, and the funds I invested in are all loaded. I’ve since learned from my early mistakes. Hindsight’s always 20/20, but planning is priceless. I hope people take this article… Read more »

MoneyChangesThings
MoneyChangesThings
13 years ago

I thought of another side benefit of working with a financial planner. You have to get all your accounts and paper work ORGANIZED for the meeting! That alone is a huge accomplishment.

Dylan
Dylan
13 years ago

The “when” is usually when you are no longer comfortable doing the work yourself, or it could be anytime you want a double-check on your own work. It is difficult to assign a specific dollar amount, age, or event that indicates it’s time to hire a planner because every situation is unique.

The presence of a conflict of interest does not necessarily mean that someone will act on it, but is it still important for both parties to acknowledge its existence and *potential* to influence actions.

sfgal
sfgal
13 years ago

My CPA is also a CFP but he doesn’t practice so he wasn’t really helpful when I asked specific questions about my retirement savings.

Btw, I was at an event called “generation debt” in SF and one of the panelists mentioned your site as one she frequents regularly for advice. keep up the great work!

Paul Pignone
Paul Pignone
12 years ago

As a Fee Only Advisor with over 30 years experience, you continue to perpetuate the misconception of Financial Planners. You make no mention of the Fee Only National Association of Personal Financial Advisors but yet you “caution” readers about advisors who charge percentage of Assets under Management as a “conflict of interest”? What about Commission Planners who receive 15% commission on the sale of annuities, and after 5 years, rollove them over again? Annuity salepeople are who you should be cautioning…

Dylan
Dylan
12 years ago

Paul, I can certainly appreciate your comments, and I am also a fee-only planner. The focus of the post is intended to be on *actual* planning, not product sales or asset management. Commissions are payment for a sale, not a service; financial planning is a service. Yes, there are some financial planners that receive commissions, and yes, that does create a conflict of interest as well. In fact, all compensation methods have the potential for conflicting interests. I hope I made it clear that consumers of planning advice should be “mindful of potential conflicts of interest when recommendations could also… Read more »

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