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How to choose a Financial Planner

How to choose a Financial Planner

July 14, 2015
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You've decided that it's time to think about your finances, plan for the future and you want some help. Maybe you changed jobs recently, got married, had a baby or received an inheritance. Whatever the motivation, you need to find a professional to help guide you through the process of examining your current situation and deciding which steps to take to ensure you reach your goals.

But now what?  Where to begin? What questions should you ask? Who can you trust?

The simplest way is to ask friends and family for referrals. If they've had a good experience with their advisor, that's a good referral. But be sure to ask them how they found their advisor and what questions they asked. Not everyone does the same amount of due diligence.

And there are lots of people working in the financial services industry who call themselves financial planners! The trick is to examine their credentials and know what to look for. Michael Kitces does a great job of detailing the different licenses and industries in the industry. 

Is it too easy to become a financial planner?

The first question to ask is whether or not they are trained in financial planning. A professional with the Certified Financial Planning (CFP) designation has received additional education, has experience in the field and has passed a rigorous 2-day exam. They commit to additional continuing education each year to maintain their designation. These steps are optional, so it's a good sign if someone has completed those steps.  The Wall Street Journals lists some other questions you should ask in their excellent article.

How to Choose a Financial Planner

Another important question to ask is whether the professional sitting in front of you is bound by the Fiduciary Standard. The fiduciary standard requires that any advice given must be in the client's best interest. Most financial professionals are not held to this standard and they fight against regulation that would change that. They are only obligated to confirm that an investment is "suitable" for a client, rather than in their best possible interest. President Barack Obama has been advocating for more financial advisors to be bound by the Fiduciary Standard.

Is your Financial Advisor a Fiduciary?

And the final important question is to ask how advisors you are considering are compensated for their work. Most financial advisors are paid via commission and only receive compensation when they sell a product (insurance policy, stock, annuity, etc.). And some products pay them a higher commission, so there is an incentive for them to push those products on their clients. Fee-only advisors are only paid by clients and those fees are clearly disclosed.  

How Financial Advisors are Paid

And the final, most important factor is to ensure that you are comfortable with the financial planner that you choose.  You will be sharing your most intimate financial secrets and if you are not comfortable enough to ask tough questions or request more complete explanations, that's a sign to exit the building!

At Pathway Financial Services, we pride ourselves on being fee-only, Certified Financial Planners who gladly adhere to the fiduciary standard. We look forward to working with our clients for years to come and hope that you will be one of them!