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Which Financial Planners Work For Me?
Now that I have spent a great many words warning you about the financial services companies that do not work in your best interest and that set up systems and compensation structures to take money from you, I am setting out to give you some tips on how to find a financial planner who does work in your best interest. I find this topic to be particularly difficult to write about because I spent several years working for a financial planning firm which I would have listed among those trying extremely hard to work for its clients and trying to improve their lives with every piece of advice. Despite that belief, which I continue to hold today, things went very wrong and clients have likely been negatively impacted to an unimaginable degree.
The following pointers are not a comprehensive list of items to look for in a financial planner. This is only the beginning salvo. These questions and observations are designed as a first step to weed out those individuals not working for you so that you can focus your real effort on determining which of the remaining financial planners fits you well. On to my thoughts.
1) 1) Pay close attention to how your first introduction with a financial planner begins. Do they try to get to know you as a person: your goals, your dreams, you past money experiences? Or do they dive immediately into discussion about your money: how much you have to invest, what type of investments do you currently own, how much money you want to make? Or do they not ask you questions? Do they instead discuss themselves, their track record, the products they can provide that will help you? Or do they provide you a presentation which ultimately leaves you feeling frightened and emotionally on edge?
A great planner will begin by trying to get to know you. They will foremost want to understand you as a person, what concerns you, what type of issues you want to avoid and what goals you hope to achieve. During this discussion, they may also want to determine what your current net worth and investments are, but this should be secondary to a discussion about you. If this is not the focus of the discussion, you may want to move onto a new planner.
If an individual you meet with discusses products and solutions before learning about you, or worse yet, provides a presentation which is designed to create fear in you, move on as quickly as possible. Firms who work against you use fear and emotion to create a sense of need for the products they want to sell to you. If they provide literature discussion products which play on your fear about losing money, or running out of money before you die, or any other fearful scenario, do not work with them. These people and firms are not looking to work in your best interest. They are using sales tactics which are designed to get you to make poorly thought out, emotional financial decisions.
2) 2) Ask the planner if they must always act as a fiduciary to clients. Double check the “always” portion of this question. There are planners who are required to act in your best interest when providing financial advice, but they can switch to a salesperson role when proposing financial products to you and no longer have to work in your best interest. Once they change their role from fiduciary financial planner to product salesperson, they move to a suitability standard and do not have a requirement to tell you that they have made this change. If you are considering hiring a financial planner, read your customer agreement carefully. The fine print will sometimes outline whom the professional has to work for and may provide details about this switching of roles scenario. It’s a pain to read through the document, but a great deal can be learned about where a financial planner’s loyalties legal lay by doing so. In my opinion, you are best served by using a financial planner who must always act as a fiduciary. It does not guarantee that the advice you receive will always work out. It does ascertain that legally that financial planner is required to put your best interest first, putting all other interests aside.
3) 3) Who does the financial planner you are interviewing work for? Are they a representative of an insurance company or investment brokerage? Or are they an independent financial advisor? In my opinion, independence is key here. Someone working for an insurance company or investment brokerage will have sales quotas in order to maintain health insurance and other benefits. They will often have a legal duty to their employer ahead of clients. They are placed in a system where the sale of product is put before a client’s best interest. Independence allows a financial advisor to take more control of how they work. They may still need to sell products in order to feed their families if they receive commissions, but many of the other incentives are removed.
The difficulty is determining whether a professional truly is independent or not. Often agents of insurance companies will set up pseudo-practices known as a dba (doing business as.) While considered independent contractors of the insurance or investment firm and allowed to use a different firm name than the company they represent, in most ways these professionals do not have true independence. They continue to be placed in a system designed to work against clients. They may inform you that they can provide products from many different companies. But they generally receive the highest commissions and the most credit toward benefits by selling their company’s products. Simply asking a financial advisor whether they are an agent or representative of a particular company is the best way to get at this answer. Except in a case of fraud, they should honestly answer the question. Secondarily, reviewing the materials they provide (product brochures, client agreements, business cards) can point to any legal relationship they have with an insurance or investment firm.
There are many other resources available to help you pick a good financial planner available on the internet. I do recommend using a CERTIFIED FINANCIAL PLANNERTM (or CFP®) as they have had a significant amount of education and testing so you can feel comfortable knowing they have at minimum the basic amount of knowledge to provide good financial advice. They are also required to act as fiduciaries by the Certified Financial Planner Board of Standards, Inc. You can locate a CFP® near you at www.cfp.net. I would also recommend using a financial planner affiliated either with the Financial Planning Association (www.fpaforfinancialplanning.org) or the National Association of Personal Financial Advisors (www.napfa.org). Both organizations require their members to hold to a fiduciary standard. While this does not constitute a legal requirement, many of the planners I have met affiliated with both organizations take that requirement very seriously.
Picking a good financial planner, one who works for you and delivers exceptional service, can be very tricky. There are very large forces at work trying to confuse you. Many of the professionals working for those organizations honestly do not recognize the position they are in nor understand alternative and better ways of providing financial advice. It is up to you to make the determination about who is working for you and who is working for their organization.
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2 comments:
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