Choosing A Financial Planner
When choosing a financial planner you first need to consider your financial objectives and decide on what type of role you expect the financial planner to have in managing your financial portfolio. There is a range of options depending on your level of investment knowledge and current financial situation (such as debt & income levels). Your life goals are also very important.
Three common financial planning scenarios are:
The financial planner constructs your personal financial plan for you based on your financial goals. They then put it into action after discussing their plan with you. The financial planner takes a "hands on" role in setting up and maintaining your financial portfolio.
You formulate your own financial plan based on advice and consultations with a financial planner. You consult a financial planner periodically to discuss any issues and get on-going advice. The financial planner plays a more of a mentoring role and you are responsible for your own finances.
Being a confident and experienced investor who is good at keeping track of their personal finances and has a sound knowledge of investment principles, you control 100% of your own finances, consulting a financial planner occassionally to get information and advice on specific issues only (eg. changes to taxation laws). You must be a confident investor in order to control your own financial future.
There are financial planners to suite all sorts of financial objectives. This is why it is important to first work out what you require from your financial planner before you actively go out and choose one.
Once you have decided on your financial goals and the role you want the financial planner to play, you can then go out and inquire about different financial planning services and their fee structures.
Three questions you must ask when choosing a financial planner:
What qualifications and experience does the financial planner have? - In the United States, you do not need to have any specific qualifications in order to call yourself a financial planner. However, it is recommended that you only use a financial planner that has the qualifications. The most common financial planning qualification is the Certified Financial Planner qualification (known as a CFP for short). Obviously, you also want to hire a financial planner which has the experience and a proven track record. Reputation is also important. Try asking around and searching for information before choosing a financial planner.
How does the financial planner get paid? - Commonly, financial planners have three possible ways of earning their income. One way financial planners earn their income is through the fees that they charge their clients for their services (such as fee only financial planners), the second way is through commissions earned through referring the client to a financial product, or a mixture of both. There can be a conflict of interest when using a commission based financial planner, since they may choose a financial product for you because they get a larger commission, instead of it being the best choice for you. This is why it is important to do your research to ensure that the financial planner you hire has your best interests at heart (reputation is important in the financial planning industry). You need to trust your financial planner since they are responsible for investing your money!
What type of financial planning strategies do you use? - Every financial planner will approach your situation differently. Some like to construct one large financial plan looking at the "big picture", whereas others like to give specific advice on each individual aspect of your financial portfolio. Similarly, some financial planners like aggressive (high risk) investment strategies and some prefer more cautious (low risk) investment strategies. You need to know what you want and then find a financial planner that meets your criterion.
Finding a financial planner:
The best places to find a financial planner is through local advertisements, word of mouth (recommendations from friends and colleagues) and professional organizations such as The Certified Financial Planner Board Of Standards and the Financial Planning Association.
|Copyright © FinancialPlannerSite.com 2005-2006. All Rights Reserved. Disclaimer|