10 Things You Need to Know Before Choosing a Financial Planner

choosing a financial planner

Choosing the right financial advisor can be a nerve-racking decision, particularly for people who are approaching retirement.

If you’re unfamiliar with the financial services industry, its complex terms, and its investment products, then choosing wisely can be a challenge. Asking the right questions, and understanding your objectives, can help you make a good decision.

1. Which Financial Services Are Provided

Certified financial planners make up around 20 percent of financial professionals. They can help you create a road map for successfully achieving your retirement savings and other goals. Some people might want a planner while others prefer a money manager who chooses and manages their investments. These professionals are often not the same person.

Likewise, wealthier people might want a finance professional with a background in estate and tax planning or with a focus on insurance products. Know what you’re looking for.

Keep Reading: What’s the Difference Between a Certified Financial Planner and a Financial Advisor?

2.  How Accessible the Financial Planner Is

The right planner or investment advisor will make you feel that your concerns or questions are valid and important. If you’re an “investment rookie,” let the advisor know so he can expect potential questions related to certain money moves or stock selections. The best financial planners will explain, illustrate and explain again if necessary. Make sure you understand the investments and strategy before moving forward.

3. How to Assess Performance

Ponying up the money each quarter to pay a fee-based financial advisor who promises to actively manage your accounts as a fiduciary (someone who puts the client’s best interests first) is typically worth it — unless he or she doesn’t perform well.  If you’re not the type to hold someone accountable for poor performance in the market or for failing to return your phone calls, then you might be better off focusing on insurance and banking instruments that require little or no performance analysis and have some inherent guarantees.

4. What Qualifications to Look For

It’s important to know a professional’s designations and qualifications. You can also gain insight into a financial planner’s approach to his work by attempting to understand him as a person. Ask prospective hires why they became financial planners and what sets them apart from other CFPs. If you listen closely, you might be able to tell the difference between advice given from the heart and something that’s been said a thousand times before.

5. How Compensation Is Handled

The most important question you can ask is also the most uncomfortable. You must find out if your prospective financial advisor is fee-only or earns commission. Are the rates based on performance? Is the advisor a fiduciary? You want your financial advisor to make a good living and have good ethics.

6. Which Investing Approach Is Used

Ask prospective advisors about their approach to investing and income planning. Blanket answers like “well balanced” and “based on past performance” aren’t compelling responses. Ask them about their market outlook, what research they rely on and whether they have mentors who helped shape their strategies and businesses.

7. How to Look Up Fines and Sanctions

Know who you’re dealing with. Ask the advisors you interview if they’ve ever been fined or sanctioned by a governing body. You can also research an advisor’s history on the North American Securities Administrators Association website. State and federal laws require brokers, advisors and firms to be registered or licensed.

Related: How Finding a Financial Planner Is Like Online Dating

8. How to Gauge Honesty

Ask prospective financial planners about the last two clients who left them and why the clients left. Such questions provoke an honest conversation.

9. How to Set Expectations

A great relationship is a two-way street. Ask CFPs what they expect from you. Who initiates contact usually? How often should you meet in person? The more details and expectations you’re able to nail down early on, the better.

10. How to Set Rules

Markets swing wildly, so it’s important to make some rules together. For instance, does the advisor have discretion over transactions on your behalf, or do you prefer to authorize transactions amid a market crisis?

Perhaps most important, make sure that you feel comfortable and that the financial planner is trustworthy before establishing a relationship. Personality can be as important as performance. Choose your advisor wisely based on your needs and your gut.