So you’re searching for a fee based financial planner and don’t know where to start? The best thing to do is go to www.NAPFA.org. There you will find a local adviser that follows a fee only model. You don’t want an adviser that profits from the financial instruments that he is selling because there would be a conflict of interest. Those who are listed on that website have followed a rigorous regimen of job experience and education. By education, I mean they have attained the Certified Fiduciary Planning (CFP) designation. This kind of adviser has taken a financial Hippocratic oath stating that he will invest your money based on fiduciary responsibility rather than suitability. Anyone can sell you a variable based annuity that’s “suitable” for you. They’ll recommend it because it suits your income model and will make you money (while secretly lining the adviser’s pockets as well). Probably the better option would be a financial planner who proactively researches all of the annuities on the shelf to find the BEST annuity for you, which is what the term “fiduciary” refers to. Under this category, there is no “him” in the profit equation, it’s only you.
When you personally visit different fee based financial planners you need to ask questions. As I just mentioned, he needs a CFP designation and must be listed at NAPFA.org. Also, be sure to find out where your funds will be held. If they aren’t held at a third party custodian then don’t use that adviser. Without this kind of accountability, your money can fall prey to greed as in the case of Bernie Madoff.
During your shopping trek for a good fee based financial planner, you will probably notice that a lot of them are young. Don’t be put off by this. This could very well indicate that they will spend more time on your account to insure profitability for you. The more money you make, the more referrals you give him. Be sure to stay away from any investment firm whose name rings a bell. You definitely won’t find fee based CFPs in those places. Rather, you’ll be dealing with an adviser who is trying to meet a quota. His ability to stay employed is based on the amount of clients he has. You have to realize that if you’re talking with someone at Morgan Stanley who is juggling between 500 clients, he won’t have your fiduciary interests in mind. His priority is feeding himself so out of necessity he will be promoting financial instruments with commissions. The best option is a financial planner/adviser who has his own office and is a 1099 independent contractor to a larger firm.
After picking your financial planner, don’t feel that you have to accept any financial instrument that he places in front of you. Before you even meet with him to discuss what to pick, research every instrument that’s out there. Your knowledge will come in handy, enabling you to ask the right questions. If he offers you a mutual fund, make sure that he will not be receiving residual income (a 12B1 fee). This is a common way for pseudo financial planners to get paid. If you unwittingly agree to get into this kind of arrangement, for the rest of your life you may never even know he is skimming money off the top every month. If confronted about this, he might call this a “maintenance fee” but really, once the mutual fund is opted into, there’s nothing to maintain. Another thing you need to know is the main difference between high cost variable annuities and low cost variable annuities. The former traditionally pays a hefty commission. Lastly, beware of his idea of getting in on an IPO which can put a large up front commission into his pocket as well. These financial instruments I just mentioned may not be bad in every circumstance. But you need to know the common issues associated with them.
A lot of financial planners will take business on the condition that he annually gets paid 1% of your entire portfolio. This might strike a negative chord inside you, but keep in mind that this kind of incentive will help him help you. During your golden years, his decisions will allow you to live swimmingly while others are picking up part time work just to survive.
So the big take home of this post is that the titles “financial planner”, “financial consultant” and “financial adviser” are frequently used interchangeably. If you want a true fee based financial planner, your success in finding one depends on the questions you ask.