Guest post by Richard Peace. Richard is a licensed Benefit Consultant (LHIC) at Financial Benefit Services managing various employer groups in the Dallas/Fort Worth Metroplex. Follow him on Twitter @richpeace.
Are you ready to hire a certified financial planner (CFP) to help make the most of your income? That’s a smart move everyone should make at some point or another. However, finding the right CFP for yourself can be a lot of work. Obviously, you want one nearby who will understand your state’s laws and whom you can meet in person. Beyond that, though, make sure you find the following three qualities too.
Financial Planner Qualifications
This should be an obvious one. Never hire anyone for anything until you look at their qualifications, especially if that individual will be handling your money. Plenty of people can sound like they know what they’re talking about; that’s no reason to hire them. When it comes to a CFP, do some research.
Not every financial planner is a CFP either. That’s a huge difference right there and something you’ll want to bring up early on. If someone introduces themselves to you as a financial planner or hands you a business card that says as much, ask them if they’re certified. If you’re afraid of appearing rude, check out their website.
If someone’s not a CFP, there isn’t nearly as much regulation around them. They didn’t have to go through the same process to become a professional who can now handle your money. CFPs have to take courses that include learning about employee benefits, tax management, estate planning, retirement planning, insurance and investment management.
Could a non-certified financial planner work for you? Probably. However, if someone is so good at their job, why wouldn’t they go ahead and get certified?
A lot of times, people select their CFP because of a friend. The person is referred like dentists or realtors. There’s nothing wrong with that, but you want to ask how long the referrer has been working with them for. Has it been a week? A month? Early on, a lot of financial planners will show their clients some kind of results and then immediately ask for referrals, so be wary. Even if your friend is doing well, you should still go the extra mile and do some research to check their CFP’s credentials.
Lastly, go ahead and see what kind of degree they have. It’s practically a prerequisite that anyone who is a CFP went through a four-year college to get their degree in economics, business administration, accounting, finance or marketing.
Dealing with a financial professional should mean there is full trust between the two of you. As their customer, you’re going to share some very personal facts about yourself with this person. This doesn’t mean talking about your marriage, per se, but everyone’s finances are a personal matter. In this sense, then, trust is a central element of working with a financial planner.
However, that has to go both ways. Obviously, you need to trust that your CFP won’t go sharing your financial information with everyone else. That should go without saying. There’s also a bigger issue, though, that you must understand and must bring up with a prospective CFP immediately: conflict of interest.
A CFP could have many conflicts of interest and you might be surprised how many of them are considered perfectly legal (this is especially true when your financial planner isn’t certified).
Ask them, upfront, if there are any real or potential conflicts of interest you need to be aware of. You should also feel comfortable asking them, not how much they make, but how they make their money.
The reason for this line of questioning is because you want to know if your CFP is getting compensated in any way for providing you with specific advice. For example, they might tell you that there’s a new stock you should think about putting money into. One day, they might tell you about some other type of investment opportunity. You could be told that it would be better if you just invested more, period.
Finding out how your CFP gets paid—and, again, it’s none of you business how much they get paid—is central to establishing that initial foundation with them so that you feel comfortable taking their advice in the future.
This is what we mean by the quality of full disclosure. If a CFP mentions they are a fiduciary, this is basically the same thing, but go ahead and ask about the above anyway.
If you check the above two boxes when it comes to your CFP, chances are you can take this one for granted, but it’s worth looking into anyway. After all, someone can be a certified financial planner, upfront about how they get paid and still give terrible advice, lack communication skills or something else you don’t want to deal with.
For one thing, this is why you always want to schedule a meeting with a prospective CFP first, where you can sit down with them and talk face-to-face. Wait until you’ve had a day or two to think about it before deciding to sign. Remember, you’ll be meeting with this person a lot and discussing sensitive issues, so you want to make sure you’re making the right decision.
Before, we brought up knowing someone who has dealt with the CFP. This can definitely be very helpful, but it brings up the point of knowing whom your advice is coming from. Don’t just take anyone’s word for it. If they’re in debt and making poor purchasing decisions, that doesn’t bode well for the CFP’s skills.
Not everyone brings up their CFP in casual conversation. Many people might just assume you already have one. That’s why you should bring up this topic with friends of yours you respect and who appear to be doing well.
You can always go online too. It’s not hard finding online reviews regarding CFPs in your area. Just be sure you go through enough that you’re not simply reading about the one exception.
Take your time when choosing a CFP. This process could easily last for weeks or even months. It’s not like hiring a mechanic where you’ll just see someone else if the first choice was a mistake. Instead, you want to pick someone whom you’ll be happy with for life.