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Friday, 18 January 2013

Choosing a Financial Planner

My wife and I are beginning to plan for our future. Part of this planning includes allocating our finances in the best possible way to meet our future goals. Up to this point, I have been handling most of the finances, but we are now considering meeting with a financial planner to get professional help. This is a common decision made by young couples, but where do we start?
How do we choose the right financial planner?
When choosing a financial planner, the first thing you should do is consider what their clients think of them. Do you have friends or colleagues that have used the same person? What do they say about their services? Recommendations give you a glimpse of what you can expect from a planner. If you hear concerns that you aren’t sure you want to deal with, move on and find someone else.
A Certified Financial Planner (CFP) gains instant credibility. This means they have taken classes and passed tests, giving them advanced knowledge in the area of finances. If they are not certified, it means they have not met specific requirements set by the state. Stay away from uncertified planners; ask planners what their certifications are, and research what it took to obtain those qualifications.
How long a planner has been in business is a good indicator of competence. Of course, everyone started somewhere, but those with years of experience have been through the ups and downs of financial planning. Quality practice leads to quality skills in important areas.
This is one of the most important factors in your decision. Financial planners can use a number of different structures to determine what you pay for their services. Understanding these structures is important in your search.
Typically the most expensive form of payment is fee-only. In this structure, the planner bills you for certain services and/or by the hour. This can get expensive, but ensures that the planner is working in your best interests. Their incentives are aligned with yours in this structure.
Those who work on commission get paid on the products you purchase. This means that they may lead you toward a mutual fund or insurance package that makes them more money, but might not be best for you. If you are planning on finding someone who uses this form of payment, you need to make sure they have your best interests at heart. Commission-based planners may also get paid a percentage of your assets each year. This is typically under 2.5%.
Some planners use a combination of pay structures. This may include a flat fee for the initial consultation, followed by a commission-based fee. The commission fee could be based upon products purchased, assets managed, or both.
Understanding how a planner is paid is extremely important. Don’t be bashful when asking them how they are paid and what their incentives are. If they are motivated by reasons you are uncomfortable with, you should avoid them.
Trust and full disclosure with your financial planner are important on both sides. You need to know their background and how they are viewed by their clients. Their certifications and experience will give you a good idea of how knowledgeable they are. Lastly, knowing and understanding their pay structure is the best indicator of their incentives.
Have you had experience choosing a financial planner? What was the most important factor in your decision?


  1. Careful of a financial planner that tries to sell you "unit trusts" or anything for which there is a significant commission. Be even more wary of one who tries to sell you a "managed" investment portfolio because statistically you're better off throwing darts at a list of share codes -- unless the guy has inside knowledge. If you want to do reasonably well on the market and depending on your age an ETF or Greenblatt's Magic Formula Investing (based on Benjamin Graham's work anyway) will work better.

    1. Agree with you Zahir, many financial planners are commission driven & dont have the clients best interests at heart. ETF's like Satrix can offer much better returns over the long term, if self managed one can do VERY well, thats why i urge people to investigate, research & educate themselves about investments & money management. Rather than just buying into policies & products punted by these Financial Planners & Advisors people have to do the homework to ensure they get the BEST possible returns on their investments.

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