How to Choose a Planner

A few weeks ago there was a discussion on how to choose a financial planner and while that question may be a simple one, I think it is anything but. Allow me to share a few random thoughts......


How to choose a financial planner is a difficult task compounded by the fact that many consumers don’t even know why they want a planner or what they are looking to achieve.

If you buy the argument that financial planning is all about defining your goals and then defining strategies that will help you achieve them and protect you from certain catastrophes then you may be on the right track. Financial planning is not about stock picking or selecting the best mutual fund, although many people think that is exactly what a financial planner does. I think the reason for the confusion is that in order to achieve goals you usually have to save and invest; and many people and organizations want your money, so although they may be investment advisors or salespeople, they refer to themselves as financial planners.

It is important that a consumer realize that they are bombarded with marketing material self promoting one group or the other. Any material that is presented by a membership organization will most likely be biased. This would include the Financial Planning Association, National Association of Personal Financial Advisors, American Institute of Certified Public Accountants and The Society of Financial Professionals. Each of those groups will be promoting the services of their own members and once you can realize that I think you may better off.

Financial designations abound but for financial planning I think that the best known credential is still the Certified Financial Planner designation. The CFP Board is not a membership organization, by design. In order to obtain the right to use the CFP mark you must now complete an educational track, have three years experience and pass a comprehensive 10 hour exam.

Bear in mind that not all CFPs have completed these tasks. Many have been exempted from taking the exam so caveat emptor!

I think that a consumer should be aware of how a planner is compensated, are you paying them or their firm directly or are they being compensated by other companies upon the sale of a product. I am not saying that one method is superior to another but the consumer must understand that it is quite possible that objectivity is being compromised when a third party is providing payment.

The consumer should be aware of the role that the planner has. If the planner is a registered investment advisor and not affiliated with a brokerage or insurance firm then he is most likely considered to be a fiduciary under the law. This affords the consumer some additional protection in the event that something goes afoul. A fiduciary must prove in court that they followed acceptable standards and always acted in the client’s best interest. A registered representative only has to show that the product sold was “ok for the client”

In my way of thinking, this is like going into a car showroom and being told that today and today only, for the same price you could either have a brand new car with a great warranty or one the was used and battered and has the skimpiest of warranties. I think that most of us would opt for the new car.

If a consumer is interested in retaining a fiduciary then it should be because of the legal protection afforded, not because they sign some membership oath. As a consumer you will be protected by the law, not some organization.

A planner should make you feel comfortable during meetings. You will be sharing a lot of intimate details and obviously chemistry is important. You must believe that the planner is listening to you and hearing you.

A planner should be familiar with your special circumstances. This means that if you are a foreign national working here and are seeking advice on tax or estate issues that the planner should have some experience or tell you that you are his first client in that area.

A planner should return calls and emails both before you become a client and afterwards. Communication is important.

A planner doesn’t have to be dressed in the latest fashions or work in a fancy office in order to be good. In fact the nature of the job does allow for some informality.

A planner should be prepared to always put everything in writing. You may not want to rely on your memory alone when it comes to strategies.

You have to realize that a planner may have to refer you to other professionals, such as a CPA or lawyer. You should ask if the planner is getting a referral fee. Hopefully the answer is no because you want to be referred to someone who is competent, not someone who is paying the highest price in order to obtain your name!

How Dark the Con of Man

I just started to read the DaVinci Code and have to admit it is a great book. I can barely put it down; I have read about 200 pages. “How Dark the Con of Man” seems to be the key phrase so far and I cannot help but wonder if there isn't a parallel between that and the argument for fee only planning. The phrase refers to creating a false picture of reality or history, perhaps hiding the truth and spreading a completely different version.

Don't get me wrong; I am a proponent of fee only planning and I do think that in many cases the consumer is much better served using a fee only planner versus a commissioned planner. I think that having the legal remedy of the Fiduciary Standard of Care is important but at the same time ask "Is it always necessary?"

I was speaking with another fee only planner who likes to toss the term fiduciary around. He was complaining because a broker in town had gotten a small account from a relatively young person. My fiduciary friend was saying.... "He is just a salesman... not a planner". I know the broker and he likes to use "A" shares of a very highly regarded fund family. I use their Advisor class myself. In my mind a 20 something year old comes in and says, "Listen I have 25K to invest long term and I don't really need that money”, then picking a quality growth fund doesn't seem to be doing anyone any harm. The harm may come about later if the consumer thinks that he is having the account managed when he's not, but certainly not in the original purchase.

Not every event in life requires comprehensive planning.