Choosing a financial planner to help you manage your money and meet long-term financial objectives is one of the most important hiring decisions you'll ever make.
But even entrepreneurs who hire bookkeepers, sales reps and executives with ease, fumble when it comes to picking the right financial planner for themselves and their families.
Why? Because even the savviest entrepreneurs often don't know the right questions to ask or what the job actually entails.
"The first question most people ask financial planners is 'What has your performance been?'" says Eleanor Blayney, CFP and president of Direction$, LLC.
Of the approximately 300,000 practitioners who claim to offer financial planning in this country, only about 60,000 have passed the examination, subscribed to the code of ethical conduct and accumulated the years of experience necessary to earn the CFP designation. "Clients need to understand that's really beside the point. Financial planning is not synonymous with investment advice," Blayney says.
Think of your planner as your "financial coach," Blayney says, "a generalist who can put all the pieces together." This can mean bringing in a money manager to build a portfolio of stocks and mutual funds for long-term appreciation, an attorney to create a trust to minimize your estate taxes and a life insurance expert to find the best policy to provide for your children and grandchildren.
"A better question to ask would be, 'What have you helped your clients do?'" Blayney says. "Relocate? Put three kids through college? Put a retirement plan in place?"
Here are 10 questions the CFP board suggests you ask your prospective planner before you sign on the dotted line:
- How much experience do you have? How long have you been working as a financial planner? What kind of work have you done for clients like me?
- What are your qualifications? Are you a certified financial planner professional or CFP® practitioner, a certified public accountant-personal financial specialist (CPA-PFS) or a chartered financial consultant (ChFC)? Be sure to look for a planner who has experience in insurance, tax planning, investments, estate planning and/or retirement planning.
- What services do you offer? Do you sell stocks, mutual funds and other financial products? Do you sell life insurance? Financial planners are generally barred from selling insurance or securities without the proper licenses and cannot give clients investment advice unless they are registered with state or federal authorities.
- What is your approach to financial planning? Will you make recommendations and then bring in other professionals to execute them or will you help me buy the stocks, bonds and life insurance policies I need? Make sure the planner's investment approach matches your own financial goals and objectives and is not too cautious or overly aggressive.
- Will you be the only person working with me? Do you have other people in the office that will assist you? If your planner works with attorneys, accountants or life insurance agents to implement his plans, be sure to get a list of names and check their backgrounds.
- How will I pay for your services? Some planners charge an hourly fee or monthly retainer. Other planners charge a fee equivalent to a percentage of the client's assets they have under management. Others charge you nothing but earn a commission from sales of life insurance, mutual funds and other products.
- How much do you typically charge? Can you give me an estimate of how much my costs will be? These costs should include the planner's hourly rates, asset management fees and any commissions he is likely to receive from the products that he sells you.
- Could anyone besides me benefit from your recommendations? If your planner receives commissions from product sales or referral fees from other companies or professionals who send him business, make sure that he fully discloses these potential conflicts of interest.
- Have you ever been disciplined for any unlawful or unethical actions in your professional career? What government agencies and/or professional regulatory bodies (the Securities and Exchange Commission, FINRA, the CFP Board, etc.) are you governed by? Contact these organizations to conduct a thorough background check.
- Can I have it in writing? Ask the planner to provide you with a written agreement detailing the services to be provided. Keep it in your files for future reference.
Most importantly, "Sit down and talk with your financial planner before you start to do business," Blayney says. "I am still stunned at the number of [Bernie] Madoff clients who never, in fact, met the guy."