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5 Tips for finding a good Financial Planner

Looking for post ideas, I asked my Facebook community for suggestions. The first response I received was, “How do I know if a Financial Planner is any good?” Others immediately chimed in that they would also like know.

So I’ve spent some time compiling criteria for selecting a financial planner for a number of sources, including financial planners themselves.

Desire to learn and teach

This habit is straight from the horse’s mouth.

“The desire to learn and teach is the most important. For a planner to be effective, he/she must constantly be studying new laws, products, strategies, and a million other things. But to really do the best thing for the client, a planner should teach each client as much as reasonably possible. Essentially, arm the client with enough information so that he/she can recognize good ideas and learn to avoid the bad ones for his or her individual situation. Teach the client to develop good financial habits, and help them develop the savvy to ask good questions.”

Here are a few questions to ask a potential planner to find out whether or not they are still learning.

  1. When was the last financial planning related course you took and what was it?
  2. What trade journals do you regularly read?
  3. What and when are your most recent certifications?

Strong educational background

Several years ago, when I was still in school and studying financial planning, I was approached by a firm offering a financial planning position while I was still in school. Not really knowing what I was signing up for, I joined and started going after my warm market. After a short time, I realized that this firm, and others like it, use a poor approach to recruiting new planners. Basically, they convince individuals who are looking to switch careers or need money or like planning or whatever reason, teach them a little bit about financial planning (focusing on variable universal life insurance), and set them loose on the population.

There is one huge flaw in this approach – the new recruits don’t know anything about financial planning except for the few, specific things they are taught in a very short time. I understand learning on the job. But sending an army of good intentioned newbies with no real educational background out to sell products to individuals who know even less does not end well.

So verify how much education your planner has in varying areas of financial planning.

Strong experience

I was tempted to combine this attribute with the prior one. However, I believe it merits its own lime light. Ask your planner or potential planner the following questions:

  1. What licenses do you have?
  2. How long have you been licensed and practicing?
  3. Who are three current clients that I can contact?
  4. Why did you lose your last two clients? (The manner in which a planner responds to this question is almost as valuable as the answer itself)
  5. How much money/assets do you have under management right now?
  6. When you are unsure, who do you consult with or call?
  7. Do you use partners for estate planning, tax planning, investment planning, and insurance planning? And if so, who are they and can I speak with them?
  8. Pose specific situations and ask how the planner would address them.

Understand that you are hiring a planner and that he or she should go through the same rigorous interviewing process that you would implement for a high level CFO. Your planner is your CFO and you will regret not spending enough time hiring the right one.

Fee based versus Transaction based

I hesitate a little to even broach this topic. I do not intend to make a case for one or the other. Rather, I just want to explain some of the issues surrounding how the financial planner is paid.

  • Transaction based financial planners are paid by the investment or insurance company every time there is a transaction or sale of a new product. Meaning, you do not pay anything to the planner (big plus). However, the planner may have the incentive to move you from investment to investment in order to generate additional income (called “churn”) or direct you to products with big commissions.
  • Fee based financial planners are paid a set amount by you to perform specific tasks or take a percentage of the value of your holdings each year. For example, I may pay a fee based planner $2,500 to evaluate my finances and create an investment strategy. The purpose of the fee is to create an objective plan. If I choose to have the planner open the accounts and make the investments for me, then he or she will receive a commission from the investment or insurance company. Or I can open the accounts myself. With percentage based planning, the planner has an incentive to grow my assets each year since the dollar amount of the fee corresponds to the overall size of my portfolio. In other words, if my portfolio grows, the planner makes more money.

Longevity in the industry

The financial planning industry experiences a very high turnover rate. The first five years are the most difficult and about 90% drop out. You don’t want to sign up with a planner that will be out of the business in six months.

So look for a busy planner with a secretary or assistant that has been in the industry for more than five years. Since assistants are paid for out of the planner’s own pocket, having an assistant usually is an indicator that the planner is both successful and serious about staying. Though anyone can hire an assistant. So also look for planners with at least five years experience.

What other factors do you find to be important when selecting a new financial planner? For more tips and commentary on financial planning, follow Rabbit Funds on Twitter.


Tags: , | Filed under Insurance, Investing, Planning


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