What to Look For in a Financial Planner

Is the Advisor a Fiduciary?

This is the most important thing to look for in an advisor. Being a fiduciary means an advisor is required to work for your best interest rather than their own. This alone does not make them a good planner, but any planner who is not a fiduciary isn’t required to be your ally. Ask them directly if they are a fiduciary—if their answer is anything other than an emphatic “yes,” thank them for their time and keep looking for someone who will keep your best interest at the forefront of your plan.

Is the Advisor Fee-Only? 

A great salesperson can make some transactions run smoothly. But if the person advising you on your finances is selling you financial products, the commission on the sale creates a built-in conflict of interest. Many good-hearted financial professionals do great work for their clients and happen to be paid by commissions. But clients may still wonder whether their advisor, however unconsciously, may be swayed by the commissions they earn on the investment or insurance products they sell. 

We believe it’s important to be sure your financial guide is not being paid kickbacks based on you following their recommendations. A fee-only planner is paid directly by the client. The easiest way to be sure your advisor is fee-only is to ask them how much of their compensation (and their firm’s) comes from commissions. The answer should always be “zero.”

Beware the planner who describes themselves as “fee-based:” This is not the same thing as “fee-only.” Unlike fee-only planners, who are paid exclusively by their clients, fee-based planners receive both fees paid by the client and commissions from financial product sales. 

No matter how a planner is paid, there will be conflicts of interest. Financial planners who choose a fee-only model usually do so in part to minimize such conflicts whenever possible. Ask planners what they do to avoid conflicts of interest related to their compensation. 

Fee-only firms may charge in one of several different ways. These are the most common:

• Advantages: Fees are easy to understand and don’t change if you need additional unexpected guidance.
• Disadvantages and conflicts: Advisors who charge based on assets under management typically provide only limited guidance on subjects like workplace retirement accounts or pensions and have an incentive to move those accounts to IRAs under their control once you leave your employer. Advice is typically centered around investments and may only superficially consider other aspects of your financial life. Since their fee is solely based on the assets they manage, there can be some disincentive to advise on non-investment-related issues.

• Advantages:This can be a good fit for those with only a few questions or who want a financial plan followed by reviews every few years.
• Disadvantages and conflicts: Hourly fees encourage the client to use as little of the planner’s time and expertise as possible. This can lead to gaps in the client’s plan. The client may wonder whether their situation truly warrants all the time the planner wants to spend. When they need more advice, the additional cost can make the client hesitate to contact their planner. A client may try to come up with an answer on their own, unintentionally causing a bigger problem.

• Advantages: These advisors typically provide holistic (or comprehensive) planning, advising on your whole financial life, not just investments. This can be a good option for people who want to create an ongoing relationship with someone who can assist with their entire financial picture. The fee typically does not change if you need more services than originally anticipated.
• Disadvantages and conflicts: Retainers or subscriptions can be more difficult to understand and are usually annual contracts paid quarterly or monthly. Since the advisor’s compensation isn’t dependent on the time they devote, their only incentive to work outside their regularly scheduled meetings is to please the client.

None of these models is universally more or less expensive than the others. While price and fee transparency are important factors, you should select the advisor that best suits your needs.

Is the Advisor a CERTIFIED FINANCIAL PLANNER™ (CFP^®) Professional?

There are many letters you might see after an advisor’s name. Some of these can be obtained just by attending an afternoon seminar, while others take years of study. The most important designation to look for in a financial planner is the CERTIFIED FINANCIAL PLANNER™ (CFP^®) designation.

• Complete college-level coursework in general financial planning, insurance, estate planning, and retirement planning
• Pass a rigorous day-long examination
• Have years of professional experience (between 2 and 3 years, depending on the type of work)
• Abide by the CFP® Board’s Code of Ethics and Standards of Conduct

Does the Advisor Specialize in Serving People Like You?

While not all financial advisors specialize, and many will take clients outside their specialty, many advisors cater to the needs of particular kinds of clients. If, for example, you have a public-sector pension, operate a small business, or have a family member with special needs, we suggest you seek out a professional who specializes in such situations or has had extensive experience with them.

Some advisors will obtain credentials demonstrating particular expertise, so you may want to research whether there are designations that would be held by people who serve clients like you.

Is the Advisor Someone You Like?

Many advisors look good on paper, but you may feel differently when you actually meet them. Financial planning requires a great deal of trust: you’ll have to be open and honest with your advisor just as you would with your doctor or lawyer. Trust your instincts: for many people, financial planning can be an emotional process involving a good deal of confidential information you wouldn’t discuss casually. Choose someone who is professional, but who is also someone you can be vulnerable and laugh with.