Jun 21, 2009

10 Things to Know Before You Hire a Financial Planner

Estate planning and financial planning often go hand in hand. It makes a lot of sense to pay attention to what you've got when you're planning how to leave it responsibly to those you love. But it's a jungle out there when it comes to figuring out how to get the help you need.

Self-help is a great option, of course. But for those who want a real-live person to sit down, review your finances, and either make suggestions on what to do better or take over  management of your assets, buyer beware. Financial planners are poorly regulated, poorly credentialed, and your remedies against a crooked one are few.

SmartMoney magazine has a great article on how to be an informed consumer. Here are some of the highlights:

  • Find out how long the planner's been practicing. Better yet, ask them if they've passed the CFP (Certified Financial Planner) exam -- that's an exam that only 56,000 planners have passed out of the 650,000 folks out there who say they are financial planners.
  • Notice if they are trying to give you advice or trying to sell you products. Stay away from those who are primarily selling products -- the odds are that they're steering you toward products that get them maximum compensation rather than those that will meet your needs best.
  • Ask them if they are preparing your financial plan or hire outside consultants to do so.
  • Find out how they are compensated. Are they fee-only or commission-based? It's not that one is necessarily better than another, but it's important to understand how they are being paid and to make sure that they will act in your, not their, best interests.
  • Check with the SEC to see if they have received any complaints about the planner.

To learn more about planning your finances, including finding a financial adviser, see The Busy Family's Guide to Money, by Sandra Block, Kathy Chu and John Waggoner (Nolo).