Personal Finance

How to Choose a Financial Planner


Many individuals see investments as something so complex that there is no way that they can ever be able to manage their money effectively. They throw their hands up in disgust and unfortunately listen to the first financial advisor who has a nice smile and a convincing sales pitch. The end result is that they fall more into despair as the products that they were sold do not fit with their overall objectives and long term goal. Then the next financial advisor (I mean financial salesperson) walks in and takes their money again.

Believe me, understanding the basics of financial planning is not that difficult, and virtually anyone can do it with a little help. Investors need to review potential planners and money managers with a list of questions to control the interview. Generally many of these “successful” scam artists and salespeople are very charismatic and are very good on their feet. Control the interview with specific questions designed to understand what they do and how they do it. You need to start with a plan and then go out and get the products. Financial salespeople are always there to sell a product and do not take the time to develop a plan that makes sense to you. This is one of the first signs.

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A securities license is a very easy thing to get and you can probably train a monkey to pass a securities exam. You can have a securities license even with a criminal record, as long as it is not for securities fraud! That is insane! You study for a few weeks and - boom - you are now a financial advisor. You may not have any training in financial planning, but you are very familiar with all the laws that you needed to pass the test. Again, it is insane to send people like this to unsuspecting individuals.

To spot a liar, you need to have a reasonable amount of understanding of what they are doing to know if they are lying. Generally, even good liars will leave gaps that will expose them. Exaggerating returns, reducing risk, etc. A good money manager will know when their strategy will work well and when it will not and they should be disclosing that. Also, review the materials they give you with a CFP, CPA or a CFA to get their thoughts on the project. Use experts in the review process as it is much harder to fool them.

Do not choose an advisor. Choose a financial planner who legally, under the 1940 Investment Advisor Act, must act as a fiduciary and legally act in your best interests. Advisors are mainly sales people who legally must act in their companies’ best interest. While these titles sound very similar, there are huge difference in the two. Google the designations they have on their cards as they may be bogus and review what is involved in getting the designation. CFP, CFA, CLU or ChFC are some solid designations. In general, references do not work, as nobody is going to give you a bad one. Referrals do, but still check on them in advance.

Finally, go to the Financial Planning Association website and put in your zip code. What you'll see are all CFP advisors that have high level educational requirements and they must act as fiduciaries for you. The minimum standard for being in this organization is substantially higher then the minimum that is required by FINRA and the SEC.