| The time and research you should put in to finding a | | | | paid is an important part of establishing the |
| financial planner is no different than the time and | | | | relationship. Always consider whether a planner's |
| research you should put into finding a good family | | | | compensation requirements will interfere with their |
| doctor. You are looking for someone you can trust | | | | objectivity when it comes to your financial plan. |
| and guide your financial health, after all. But how | | | | There are three general compensation categories |
| should you start your search? According to the | | | | that a planner will fall into: commission-based, |
| National Association of Securities Dealers (NASD) | | | | fee-based, or fee-only. |
| there are no fewer than 69 different financial | | | | 1. Commission Based - Planners in this category earn |
| credentials that you may run into. This article will | | | | their paycheck through commissions on sales of |
| attempt to help you narrow down your search | | | | products, such as stocks, bonds, mutual funds, and |
| before you even pick up the phone and start calling | | | | insurance. Some commission-based advisors |
| prospective planners. | | | | associated with banks or brokerage firms may have |
| As with a family doctor, the best place to start your | | | | sales quotas they need to fill in order to keep their |
| search is referrals from friends and family and ask | | | | jobs, and the products they are recommending may |
| who they work with. The best planners out there will | | | | not be the best option for you. If the planner is paid |
| tell they get the majority of their new clients from | | | | a commission it does not necessarily mean they are |
| referrals. You can also use the internet to look for | | | | not looking out for your best interests. But the |
| planners in your area. A few websites out there | | | | potential for conflict of interest is greater. |
| provide good starting points. The Financial Planning | | | | 2. Fee-Based - Planners in this category usually have |
| Association (FPA) website includes planners who are | | | | their compensation based on a flat fee or percentage |
| fee-only, fee-based, or commission-based. The | | | | of money under management as well as commissions |
| National Association of Personal Financial Advisors | | | | on sales of products such as stocks, bonds, mutual |
| (NAPFA) website only includes those planners who | | | | funds, and insurance. |
| adhere to a strict fee-only compensation model. All | | | | 3. Fee-Only - Planners in this category do not sell any |
| three compensation models will be explained below. | | | | commission-based product, instead charging an |
| When deciding what type of planner best fits you | | | | agreed-upon flat fee or a percent of assets under |
| and your family's finances there are four areas to | | | | management. It is argued that removing any |
| consider: credentials, experience, how they are | | | | incentive to buy or sell a particular investment for a |
| compensated, and to what regulatory standards | | | | client also removes any conflict of interest and the |
| must they adhere to. | | | | planner is making their recommendations based on |
| Credentials | | | | what is best for the client, not the planner. |
| Of all the credentials in the financial world, the four | | | | Which compensation model is the best? I'm willing to |
| most common are CFP, CPA-PFS, ChFC, and CFA. | | | | guess that planners in each category will make their |
| 1. Certified Financial Planner (CFP) - Awarded by the | | | | argument as to why theirs is more advantageous to |
| Certified Financial Planner Board of Standards, or CFP | | | | their clients. In the end, you must be not only |
| Board, to individuals who meet the CFP Board's | | | | comfortable with how your planner is compensated, |
| education, examination, experience and ethics | | | | but you should have an understanding as to how |
| requirements. A professional with a CFP designation | | | | much they are being paid for each recommendation |
| should have a broad knowledge of all aspects of | | | | they make. If they do not volunteer that information |
| financial planning including investments, estate | | | | to you, simply ask! If they value you as a client they |
| planning, retirement planning, insurance and taxes. The | | | | will have no issues in providing that information. |
| designation means the person has passed rigorous | | | | Regulatory Standards |
| examinations and met certain requirements. | | | | Financial planners will fall under one of two standards |
| 2. Certified Public Accountant - Personal Financial | | | | with their clients. These two standards are "suitability" |
| Specialist (CPA-PFS) - CPAs, by trade, have a more | | | | and "fiduciary". |
| extensive background in tax issues. A PFS designation | | | | Brokers, also known as 'registered representatives' |
| is awarded by the American Institute of Certified | | | | may call themselves financial planners but they are |
| Public Accountants to CPAs who have taken | | | | basically employees of a stock exchange member |
| additional training or already hold a CFP or ChFC | | | | firm who act as account executives for their clients. |
| designation. | | | | These brokers fall under the jurisdiction of the |
| 3. Chartered Financial Consultant (ChFC) - Earned | | | | self-regulatory Financial Industry Regulatory Authority |
| through The American College in Bryn Mawr, PA, and | | | | (or FINRA) and are held to a less stringent "suitability" |
| designees tend to work in the insurance industry. A | | | | standard. This means their recommendations must be |
| professional with the ChFC designation should have a | | | | "suitable" to their clients (e.g. be in line with the client's |
| broad knowledge of all aspects of financial planning, | | | | risk tolerance and long-term goals). Therefore, a |
| including investments, estate planning, insurance and | | | | broker is legally free to recommend an investment |
| taxes. The designation means the person has passed | | | | that pays his firm (and himself) a higher commission |
| rigorous examinations and met certain requirements. | | | | over a similar lower-cost fund as long as the |
| 4. Chartered Financial Analyst (CFA) - Awarded by | | | | investment is suitable to the client's situation. |
| the CFA Institute to experienced financial analysts | | | | In stark contrast, planners held to a "fiduciary" |
| who successfully pass three examinations covering | | | | standard could not do that. If held to a fiduciary |
| economics, financial accounting, portfolio | | | | standard the planner, by law, must place the client's |
| management, securities analysis, and ethics. CFAs are | | | | interests first. CFPs and Registered Investment |
| more likely to work for mutual fund companies, | | | | Advisors (RIA) are held to the strict fiduciary |
| institutional asset management firms, or pension | | | | standard. (Registered Investment Advisors are simply |
| funds. CFA charter holders are annually required to | | | | planners who are not employed by, nor have any |
| affirm their commitment to high ethical standards. | | | | affiliation with, brokerage firms or other financial |
| Experience | | | | institutions, and must register with the U.S. Securities |
| With the impending onslaught of baby boomers | | | | and Exchange Commission and/or state regulators) |
| nearing and entering retirement, the financial planning | | | | If you are comfortable with your planner not being |
| profession has become a second-career choice for | | | | held to a fiduciary standard, at least ask them to |
| many planners out there today. You will want to | | | | explain precisely the reasons for their |
| keep this in mind when you interview potential | | | | recommendations, including what's in if for them. |
| planners. Ideally, the planner has been in the | | | | In Summary |
| profession for more than five or ten years and has | | | | Finding a financial planner for your family ultimately |
| an educational background in the profession. The | | | | comes down to trust. Regardless of the planner's |
| number of colleges actually offering degrees in | | | | association to a certain firm, their compensation |
| Personal Financial Planning and Counseling has | | | | structure, or experience you must feel a strong |
| exploded over the past decade. One of the most | | | | connection between the two parties. Your |
| well-known programs today is right up the road in | | | | relationship with a financial professional is, above all |
| Lubbock, TX at Texas Tech. | | | | things, a partnership. It is worth taking the added |
| Compensation | | | | time to find the right planner upfront because you |
| Understanding how - and how much - a planner is | | | | want this relationship to last a lifetime. |