By FPA member, Richard J. Durso, CFP^®, AEP^®
Last Updated: December 10, 2012

Imagine this: It is 3:30pm on a hot summer day in a suburban Philadelphia office with a salesperson trying to convince you to purchase an "investment." You have a hundred things on your mind which include preparing for a work meeting, planning a relative's birthday party, figuring out what to have for dinner, and determining your grocery list. You want a "professional" to tell you what to do with your money and to provide proper guidance, but your gut is telling you that something is not right. The salesperson is trying to pressure you to sign an application and submit a check today. You wonder if someone is about to take advantage of you. This situation happened to a friend.  Luckily, this friend decided not to fall victim to the pressure and to run the strategies by me, a CERTIFIED FINANCIAL PLANNER™ practitioner.

How do you choose the right advisor with so many different titles? Should you decide between a financial planner, stock broker, wealth manager, insurance agent, or investment advisor? Some advisors may focus on their particular specialty area and not take your complete financial picture into account.  

I believe that on-going, holistic financial planning is the best approach. The Certified Financial Planning Board of Standards defines the financial planning process as the following: 

• Establishing and identifying the client-planner relationship 
• Gathering client data and goals
• Analyzing and evaluating your financial status
• Developing and presenting financial planning recommendations and/or alternatives 
• Implementing the financial planning recommendations 
• Monitoring the financial planning recommendations  

An advisor following these standards will typically develop a financial plan which includes but is not limited to: Savings and investment strategies, retirement planning, risk management, estate planning, tax planning, proper cash reserve establishment, and college planning.

Some questions you may want to consider include:

What are your goals? What are you hoping to accomplish? Why do you need an advisor? 

• Do you need to hire a planner for only a few hours of advice about a particular topic such as college planning, retirement planning, insurance planning, or another financial area?
• Do you require ongoing advice or a one-time investment recommendation?
• Are you trying to determine how much life insurance your situation requires?

How to begin?

• Check these websites:  
  • FPA® (Financial Planning Association®) 
  • NAPFA (National Association of Personal Financial Advisors) 
  • Certified Financial Planner Board of Standards 
  • NAEPC (National Association of Estate Planners & Councils) 

How to research and screen?

• Credentials: Does the advisor have the CERTIFIED FINANCIAL PLANNER™ designation? This designation is the gold standard for financial planner professionals who denote ethical duty as well as comprehensive education and training. Does the person have other degrees or designations such as: a Master’s degree from an accredited university, Chartered Financial Consultant, or Accredited Estate Planner?
• If you use Registered Investment Advisor, confirm that they have a legal fiduciary duty to put their client’s interest first. Then consider going to the SEC (Securities Exchange Commission). Also, request a Form ADV Disclosure Brochure from the Registered Investment Advisor. This will provide you with insight into compensation, services performed, etc.
• If you use a FINRA licensed broker, go to the FINRA (Financial Industry Regulation Authority) Broker Check website to research the advisor to see if there has been and disciplinary actions taken against him or her.
• Experience: How long has the person been in the profession? How do you compare to that advisor’s typical client?
• What services are offered and does it match with what you are looking for? Be sure to review agreements that outline the services.
• How will you pay for the service? Will you pay a one-time fee, annual retainer, asset management fees, and/or commissions? You can request a fee schedule. What are the fees for service and what does it include?  If you are looking for financial planning, do you pay hourly? Is there an annual retainer? Are there additional charges and fees if your money is invested?
• How does the advisor get paid? There are basically three types of compensation methods. The bottom line is that there are honest advisors who want to truly help their clients and there are dishonest advisors. You should understand how the advisor gets paid.

1.  A fee-only financial planner works with a Register Investment Advisor (RIA) firm and adheres to the fiduciary standard. This practitioner must act in the best interests of the client and does not make commissions or overrides on product sales. This person has no incentive to recommend one strategy over another on the basis of commission, only on the basis of what is best for the client. Some fee-only planners charge a flat fee for comprehensive planning and investment management while others may bill hourly for planning and investment advice.
2. Commission-based brokers, as of July 2012, adhere to a “know your customer” obligation and suitability standard. They must have a reasonable basis to believe that the recommended transaction or investment strategy is suitable for the customer based on the information obtained through the reasonable diligence.   “Is this product suitable for you?” This type of advisor may make commissions from selling insurance products, annuities, and mutual funds. Due to the advice given, a broker may sell investment products with higher than average sales charges and management fees.
3. Hybrid model practitioners do a bit of each. This person acts as a fiduciary when giving advice and follows the suitability and "know your customer standard" when selling a product. It may be a bit confusing to determine the standard of care being adhered to during the engagement.  

What’s next?

• Interview the person to meet and discuss your goals in conjunction with the services offered. 
• Ask questions such as: How do you get paid for giving me advice? Are you giving this particular advice to me in your capacity as a broker or as an investment advisor? What are your credentials in financial planning? Do you have a fiduciary duty to me when proving advice?
• Pay close attention to their ability to listen to your needs. Do you think you will be a good match?
• Pay attention to the questions they ask of you. You gain a great deal of perspective as to their overall approach.
• Carefully review all service agreements before making a decision.

In the current environment of market volatility, economic and tax uncertainty, the services of a trusted, qualified financial advisor will certainly benefit you. Having a clear idea of how to select such an advisor is your best assurance of enjoying the value of such a relationship while avoiding costly mistakes. To find a CFP professional in your area who is also a member of FPA, please visit FPA PlannerSearch.

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