If you’re looking for a financial planner, chances are you’ll be inundated with advice before you choose one. Some experts will say that choosing a financial planner is like shopping for toothpaste; others say it requires the same effort and diligence as selecting your life partner.
The truth is somewhere in between: Finding a qualified financial planner takes some work, but you’ll likely find the process somewhat easier than finding a new dentist.
What qualifications should you look for? What are the best questions to ask any prospective financial planner? How do you go about finding one who has experience working with clients just like you? And how do you tell whether your new advisor is the type who stays with you for life instead of selling your account to a bigger firm?
Jeffrey Small has authored several books and hosted radio shows on investment strategies and financial planning. He also runs Jeffrey Small Arbor Financial Group, an independent advisory firm in Florida that helps investors navigate investing through all stages of their lives—from young professionals moving out of college to retirees looking for reliable income.
Jeff recently shared his thoughts on what investors should look for in a financial planner, the best strategies for finding someone who fits their needs, and how to avoid common pitfalls.
What makes a financial planner qualified to work with you?
Intuition tells us that we should look for someone who has years of experience and holds the proper credentials. But that’s not always enough… You need someone whose values and interests align with your own—someone who is willing to work hard on your behalf and stick with you throughout your entire financial journey.
I always ask my clients to ask prospective planners, “What is your philosophy when it comes to money and investing?” This question will help you determine if the planner has a belief system that matches up with your own.
For example, a planner might use a contrarian approach, which means they only buy when the market is down. A client of mine once went to a planner who told him he was investing in the wrong areas and should be buying more growth stocks instead of bonds. Although this may have been good advice for some investors at that time, it was precisely the opposite of what my client thought he should do.
This planner’s system of beliefs was not aligned with my client. The same goes for a more conservative investor who wants an income plan and a growth-oriented investor looking to accumulate his fortune.
What are the most important questions someone should ask when selecting a financial planner?
A prospective client should always ask three questions: “How long have you been in business?” “Do you receive compensation one way or another for providing financial advice?” and “Do you work on commission, or are you affiliated with any bank, broker, individual, or company that receives revenue based upon fees?”
The first question helps establish when the planner began his career, which shows how long he’s been in business and how much experience he has. The second question helps a potential client determine if the planner works on commission, receives revenue from product sales, or is affiliated with a company that does so. Finally, the third question lets them know whether this person is an independent professional advisor who is unbiased regarding product recommendations.
By asking these questions, a client can get a clear picture of his financial planner and the type of advice he provides.
How do you go about finding a reputable financial planner?
There are many ways to find a good one: through word-of-mouth recommendations from friends and family members; by asking your financial adviser; through articles and books like mine; or by looking online.
The most critical factor in finding a good planner is personal referrals because someone you know has worked with this person before and can vouch for his skills. If that’s not possible, I recommend the next best thing—a planner who is a member of an independent third-party organization with high standards. The three best independent organizations that I recommend checking for planners who belong to are the National Association of Personal Financial Advisors (NAPFA).