What to Ask Your Financial Planner

What to ask a financial planner

Finding a good financial planner can be a daunting task. However, if you take the time to methodically go about the task, then a lot of guess work can be taken out of the equation. Here we provide good tips to help make the task of finding a financial planner just right for you. And towards that goal, the idea is to be prepared to ask your financial planner questions; that is consider that you are interviewing them for a job and scrutinize their qualifications, their personality and everything about them just as if they were applying for a job at a company that you own. And why shouldn’t you? The financial planner will work for you and help your organization, which is your estate, your family’s nest egg, reach your financial goals. You are best advised then to hire wisely. Ask and ask questions again and again until you are comfortable you found the person right for you.

A good idea is also to request a written disclosure document from the planner. This will either be what is commonly called a Form ADV or an equivalent brochure. This should answer many of your questions. You may then want to follow up with a personal interview, which many planners will do for free. Some of the basic information you want to know may be including on Form ADV or you may have to ask yourself. Below are some questions that you should have answered before considering the service of any financial planner.

• As we touched upon with CFP, know what financial planning and other financial designations the planner holds; come right out and ask them.
• Ask them what their educational background and work experience is in regards to financial planning, especially in the areas that matter to you. Can they refer you to any clients of which they have successfully carried out a financial plan?
• What licenses do they have to sell certain financial products, such as life insurance or securities? Ask to see them. Are they on the wall of the office? Or, are they merely letters on stationery? Just like any job interview, people have been known to fake qualifications. Do due diligence on their background.
• Get a full description of the services the planner provides and we mean a full description. You don’t want to sign on to a planner only later to realize they don’t offer the type of planning service you really need? By then you might be out some money, which defeats the whole purpose.
• What is the financial planner’s basic approach to financial planning? Will they work directly with you? Will someone in their office be assigned your account? You need to know how they will communicate with you.
• What are their areas of specialization? Insurance? Estate Planning? Retirement? Investing?
• What specific types of clients the planner services; what if any minimum net worth or income requirements to they maintain?
• What professional affiliations, including membership in the Financial Planning Association as well as other boards of note do they belong too?
• How exactly does the planner go about preparing a plan? Does one plan fit all? Does he have a cookie cutter plan that he or she will shoehorn your financial goals into or will they custom tailor an approach based on your unique financial situation?
• How will the planner take the time to understand and address your particular needs?
• Whether the planner or others will implement recommendations from the plan
• Ask them to explain the business relationships the planner has that might present a conflict of interest if any?
• How the planner is paid for services and the typical charges?

Our list does not purport to contain all the questions you might ask, but it should cover the most important ones. Remember, a live interview also should give you a personal sense about the planner and how you will be able to relate to them. Does the person seem forthright in their answers? Do you have a sense of trust and rapport with this individual? Is the person focused on your needs, not selling products?

Foundation of trust

The center of any working relationship with a financial planner is trust and trust must be earned. Trust is built on two factors: the planner acting in your best interests, and full disclosure of the planner’s background, business practices and other issues. Once all this is out in the open, then trust can build. You need to trust your financial adviser.

If you can’t trust them, then meeting your goals will be burdensome. We are reminding of a faithful man that believes in the God Almighty. He tells his children, “Trust in God, but lock your doors.”

The same advice might hold true with your financial planner. It is your money but it never hurts to keep an honest person honest. Never feel that it is intrusive to suddenly ask your financial planner a questions relating to something he recommended to you later or at any time for that matter.

Moreover, full disclosure means the planner is open in providing answers about the planner’s work experience, compensation, methods of planning and hides away from nothing. For example, what business relationships does the planner have? These might be relationships with companies whose products the planner sells, or referral fees the planner earns by referring you to certain professionals.

The financial planner also should disclose any disciplinary actions that may have been taken against the planner such as The CFP Board.

Call 888.CFP.MARK to confirm whether disciplinary action has been taken against a particular CFP professional that you may be interested in hiring. Ask yourself if you do not receive full disclosure from a financial planner up front about any action against them, that what should that tell you? In our opinion, it should tell you to take your financial planning needs elsewhere and the sooner the better.

Paying for your financial planner

So now that you did due diligence and found a financial planner that has the proper qualifications and appears to be one you can trust, you need to know how to pay for their services. There are several ways of paying financial planners that seem common.

Keep in mind that some are paid by more than one method. Also, each method has its merits. Choosing the appropriate one that works for you depends on your individual situation and what you feel comfortable with in the long run. Prior to entering into a relationship with a financial planner, you should have a very clear understanding of how he or she will expect to be compensated. .

Below are the more the more common methods of compensation when paying for financial planning services:

Fee-only

In this type of arrangement the financial planner is compensated entirely from fees for purposes of consultation, development of the plan or investment management services. These fees may be charged on an hourly or per project basis depending on your needs; it can also include a percentage of assets under management.

Combination Fee/Commission

A fee is charged for consultation, advice and financial plan preparation just as in the fee only. However, in addition, the financial planner may receive commissions from the sale of recommended financial products used to implement your plan. Like we have said before, under such arrangements, you need to know how they are making money. If they get a commission from a product they sold you, is it based on how that product performs? If not, ask yourself if that product is truly in your interest or theirs.

Fee-offset

The fee-offset is a hybrid of the previous arrangements. Generally commissions from the sale of financial products are “offset” against fees charged for the planning process over all. Once again, that does not mean the financial products are the best option for you. You have to carefully evaluate the fee-offset plan to see if it is conducive to your long term financial goals.

Commission-only

Under this arrangement there is no charge for the planner’s advice or preparation of a financial plan. Compensation is received solely from the sale of financial products you agree to purchase in order to implement financial planning recommendations form the financial planner. Nothing wrong with this per se, so long as the financial planner is upfront about whom he or she will make money on your financial plan.

Salary

Some planners work on a salary and bonus basis for financial services firms. That is, maybe they will simply get a bonus if you purchase additional products from the financial planner. If so, they should make that clear. There should never be any circumstance under which your financial planner is compensated and you are left in the dark about how exactly they are making money.

In all of the above categories of compensation, you have a right to request information on any real or potential conflicts of interest as they pertain to your financial plan. Additionally, you need to be aware of how commissions received from any financial product sales affect your financial planner. You should ask whether they will receive outside incentives or bonuses for making certain recommendations that you act upon. We can’t emphasize this enough. If you feel awkward about asking any of those questions, use this site as a an excuse. Tell them you read that FinancialPlanners.com suggested I ask some of the following questions. Hey, the burden is no longer on you, but us. We can deal with it.

We hope this information helped take a lot of the guess work out of what often can seem the daunting task of finding the perfect financial planner for you. In the end, remember it is your money. You are hiring the financial planner and they should be prepared to answer any question you have just as if they were interviewing for a job with your company. You should come prepared to ask them a litany of questions to your hearts delete. You should know how they are going to make their money as they help you make yours. You should know everything there is about them and they should have nothing to hide. After all, they are interviewing to join the staff of the company called your life. Don’t hire just anyone.

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