Remember the DIY boom? Back around the turn of this century, Americans decided they didn’t need a contractor to remodel the bathroom, build a deck or lay a brick sidewalk. Egged on by HGTV’s home-improvement-porn programs, which made it all seem so simple, we set Home Depot and Lowe’s registers ringing.
And then reality set in. Not all of us have the skills and patience to hang dry wall properly or reroute plumbing. After hours of frustration and cursing, America came to its senses and returned to hiring home improvement pros.
There are some analogies here for how we manage our finances. Investing has never been easier for individuals. Many of us participate in employer-sponsored 401k plans, which make investing automatic and simple. For those who want to be hands-on, the internet offers tons of insight and data, and low-cost platforms for buying and selling investment assets.
Many people are well equipped to handle their own finances. These are folks with a serious interest in money – and the time and knowledge to follow the markets closely and make appropriate changes to their portfolios as needed. Most importantly, they are able to keep their emotions – fear, greed, jealousy – out of the equation when making investment decisions. But what if that doesn’t describe you? Fortunately, you have the option to hire a money professional.
There are innumerable options when you are in the market for financial advice. Stock brokers, bankers, insurance agents – everybody wants to help grow your nest egg!
But, just as you should be careful when hiring a contractor, you must be mindful of your financial advisor’s level of training and experience. That’s why you should consider retaining a CERTIFIED FINANCIAL PLANNER™ if and when you go looking for guidance. Full disclosure: I’m a CFP® professional.
CFP®‘s undergo a rigorous training and certification program that prepares them to address your finances holistically. They are all college graduates who have gone on to complete another college-level course of study in financial planning. The aspiring CFP® certificant must pass a demanding certification test – think bar exam for financial planners – and complete three years of work experience to earn the designation.
CERTIFIED FINANCIAL PLANNERS™ voluntarily subscribe to a stringent code of ethics that ensures they act as fiduciaries – always making decision and recommendations that are in their client’s best interests.
The CFP®’s holistic approach will encompass some or all if the following aspects of your financial life:
1. Analysis of your current situation and preparation of financial statements, such as your net worth.
2. Insurance planning.
3. Maximizing use of your employer’s retirement benefit program, i.e., your 401k.
4. Investment planning.
5. Income tax planning.
6. Estate planning.
In my experience, early client meetings focus on #1 – getting a real sense of where my client is starting from and where he wants to go. As part of this process, I like to help the client develop a timeline for their various life goals. This helps determine a variety of things, such as how much the client needs to be saving and what sort of assets he should include in his portfolio.
This almost inevitably leads to a discussion of #5 – taxes, and how to minimize them. Insurance planning and making the most of the 401k are typically next on the agenda.
There are thousands of CFP® professionals in the United States, so there are surely several practicing near you. With a bit of effort and homework, you will surely find the right CFP®. First off, don’t accept that someone is a CFP® because they use that title. Only those certified by the CFP® Board are truly accredited. You can confirm someone’s CFP® claims at the CFB Board’s website.
The CFP® Board is also a good place to find a nearby CERTIFIED FINANCIAL PLANNER™. If you are looking for a fee-only planner, check with the National Association of Financial Planners.
When interviewing potential advisor, ask these questions:
- Tell me about your experience. CFP® professionals must have a minimum of three years experience. Obviously, the more market cycles the CFP® professional has seen, the better.
- What are your qualifications? Ask about his credentials and try to determine if he really has a passion for finance.
- How do you approach financial planning? Make sure the planner’s investing philosophy isn’t too aggressive or too conservative for your agenda and needs.
- Tell me about your client base. Some planners require a minimum net worth, or have other parameters for prospective clients. Make sure you aren’t going to be an after thought.
- Who will handle my account? Some financial planners handle all clients directly, while others work with a team. Ask to meet any other team members, and check out their credentials as well.
How do you prefer to be paid? Planners may receive commissions and/or fees. Make sure all this is detailed in your agreement. Fee-only CFP® professionals (including me) are paid only by you – they don’t get commissions for selling you into various investment products.
- How much do you charge? Get a clear estimate of hourly rates, late fees, or commission percentage.
- Do you see any conflicts of interest? Again, CFP®s must adhere to a strict code of conduct that requires them to put your needs ahead of all others.
- Have you been the disciplined you for unethical or unlawful actions? The CFP® Board, the Financial Industry Regulatory Authority (FINRA), and state insurance and securities regulators are good sources for this information.
Choose your CERTIFIED FINANCIAL PLANNER™ wisely, and you’ll brag on her endlessly — just like you go on and on at every dinner party about the guy who remodeled your kitchen. The only difference: you’ll still be working with her years from now when you’re starting to think those cabinets and counter tops are looking a bit… dated.