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A financial planner is most often a generalist. In other words they don’t do your taxes but they know how all of these items interact with each other and they can make recommendations. In a perfect world they would have working relationship with both your CPA and your estate attorney to make sure that everything is coordinated well. Unfourtuanly finding this kind of person is not always as easy as one would think. Unlike a doctor or a lawyer there is no license to be a financial planner. A stockbroker calls them self a financial planner and so do representative for national life insurance companies. They both have knowledge on parts of the puzzle, but will they tie them together for you…that depends. The important thing is to put together the right list of questions:
That leads us to the next question…fees or commissions? In this writers opinion it depends. Think about what you are buying. Is it a product or a strategy? Will it require ongoing maintenance or once it is purchased is the professional’s job more or less done.
For instance when buying term insurance a professional can be helpful in not only determining how much you might need to buy. They can also help you find a safe company that will provide coverage at the best price. In addition if you have any health issues they can help you find an appropriate solution. Once this coverage is in place, you may not need more that an occasional review as your life changes.
You want to buy a 20 year municipal bond and collect the interest till it matures; do you really need to pay a fee every year if this is the only service you want? However there is the flip side. You want someone to help you mange you investment portfolio for the next twenty years? Does paying someone a commission up front make sense for something generally requiring ongoing maintenance? Pension funds pay people every year to continue to monitor their investments. Why? Because the world might look a little different than it did a year ago. Rebalancing the portfolio to the desired allocation might be prudent. A talented manager might have left your fund to start up his own shop and taken most of the team with them. All of these items might cause you to want to have a review and make some changes.
That decision is up to you. The end case is you should think about if your needs are compatible with their revenue model. Let me elaborate in this for I think this may be the most important thing for you to consider. Nobody in this business is doing it to lose money. The conflicts of interest form a list long. For the average person on the street to see through an advisor that is trying to sell you something versus provide you advice is next to impossible. Therefore is very helpful to know the general model of the business. How often do they see their clients, what is their repeat business? You are within you right to ask them how much do they make on the products they are recommending. It may sound like a lot no matter if it is right or wrong but I think the critical part is do they have an incentive to keep you happy over the long term. Financial products are a long term relationship. They should have at least some incentive to make sure that you are just as happy five years from now with your choice as you are next week. Reflect upon your expectations and see if they are going to have some level of compensation required to still care about you in two years, or, are they only going to make money in the future if they sell you something new. This is not a great basis for a relationship, how good a friend would someone be in the only time they ever wanted to go to lunch with you was if you paid for both of you?
A full frank conversation about the way they are paid is an uncomfortable but necessary process to go through. The more they shy away from a conversation about it, the more you might think about taking your money elsewhere.
The last thing you should make sure of is how they work with their clients. I don’t mean how they get paid we just talked about that. I mean what is their process.
The most important thing about this process is to get started. You are not getting any younger and your solutions will not find themselves. Write down the questions you have about your own life and future. Talk to a number of financial planners and find one that you connect with. If the fit is right, they might be in your life for a long time…hopefully.
