A dear old friend called me the other day. Expecting her first child, her finances were scattered — Roth IRA here, a brokerage account there, some insurance, a home with equity and not enough left over to invest.
She’d read all the books but still needed to get her financial house in order. The whole thing seemed overly complicated, and she worried about losing money, which I completely understood. It’s hard to know whom to trust with your precious nest egg.
My friend needed assistance creating a financial plan and asked if I could help.
I told her creating plans isn’t our focus — we manage portfolios for investors seeking better returns. But I could definitely help her find someone good. I gave her four ideas right up front:
1) Work with a Registered Investment Advisor (RIA).
RIAs have a fiduciary mandate. Fiduciaries are required by law to put the client’s interest first, and all RIAs operate under this standard. You want your advisor to recommend strategies that are best for you and your situation, not those that line their pocketbooks with commissions, kickbacks or other third-party incentives.
2) Look for a Certified Financial Planner (CFP).
Although any financial advisor can help you create a plan, a CFP has gone through rigorous supplemental training with an additional exam. They’re also required to take continuing education to keep current with certification.
3) Look for someone who charges a flat fee for planning services.
Find someone who tells you up front what they’re going to charge to produce your plan, with no ongoing fees. It’s common for RIAs to be compensated by percentage of assets under management. For example, if you place $100,000 for investment and they charge 1.5%, your annual fee would be $1500, and some may include a financial plan for no extra charge. If you go that route, you are tied to that firm without having had the opportunity to shop around for potentially superior portfolio management or cheaper options if you don’t have much to invest.
4) Look for independent firms, not tied to company products.
You want original thinkers on your team, not people beholden to one set of products. Independent advisors don’t have sales quotas for particular funds, they don’t have a proprietary desk trading against you, and they can choose any products they want for the benefit of their clients.
Now that you know what to look for, how do you find a good financial planner?
During our conversation, my friend mentioned her insurance broker. She said she liked him because he was a real, no-BS kind of guy. I said that if she trusts him, ask him for a recommendation.
Asking people you know and trust, who’ve had a successful experience with the advisor they’re recommending, is often the best way to go.
But all of the above still applies: you want a fiduciary looking after your best interests, preferably a CFP, who charges a flat fee at an independent firm.
Whether or not you get a personal recommendation, do your research online.
Curious, I googled “financial advisor [her city]” and had to admit, the choices were daunting. Lots of people showed up, but who were they?
The related searches down at the bottom, where I found “certified financial planner [city, state]” seemed to yield the best results. The top entries were big-name advertisers and directories that advisors pay to be in, but further down, I found actual, independent investment advisors who were also CFPs.
I like looking at firm websites versus generic directories because you get a sense of their personalities and can learn more about them before making the call. But if you prefer directories, search for Certified Financial Planners here.
Another great way to find a planner is through LinkedIn’s ProFinder service. Simply go to this page, answer a few quick questions about what you want to accomplish, and submit. Within 24 hours, CFPs start responding with proposals for you.
If you’re connected to these planners on LinkedIn, or know people who are, that makes it easier. Simply ask your contacts about their experiences with each financial planner they’re connected to.
So there you go, your plan to make a plan!
If you have any questions, please feel free to comment below.
The fiduciary distinction:
Finding a financial planner, a good overview from the Wall Street Journal:
Paladin Registry: Advisors pay quite a bit to be on here, but they are vetted:
Garrett Planning Network: Also pay to be here but committed to affordable fees:
Check for disciplinary actions against a CFP: http://www.cfp.net/learn/disciplineactions.asp
Look up any investment advisor by firm or individual to see disclosures or check for disciplinary actions: https://www.adviserinfo.sec.gov/