Ever wonder how a financial planner is different from a stockbroker? Stockbrokers are also seen as market mavens who trade stocks. Planners aren't accountants, either (although some accountants do work as financial planners) — they aren't called upon just to lower your tax bill and they aren't insurance agents who try to sell you complicated life insurance. They're not around only to urge you to buy specific mutual funds either. A financial planner should be familiar with a variety of techniques and tools, including trusts, if they are right for you.
Anyone can hang out a shingle and say that he or she is a planner, but that's not enough — check to see whether he or she has become a certified financial planner, which means that your adviser has passed a rigorous test run by the Certified Financial Planner Board of Standards, which tests on the specifics of personal finance. CFPs need to continue their education on financial matters and ethics to maintain their designation.
The CFP credential is a good sign that the prospective planner will give sound financial advice. Still, even those who pass the exam might come up short on skills and credibility; that's why it's always wise to be meticulous in choosing the right planner.
Financial planners earn their living either from commissions or by charging hourly or flat rates for their services. You might want to avoid financial planners who rely on commissions for their income because you'd rather feel confident that the advice you're receiving is unbiased — if they profit from steering you to particular products, their advice might be muddied.
Fee-based planners don't get a cut from life insurers or fund companies. You might pay them a flat fee — $1,500, for instance — for a financial plan. Otherwise, you could pay an annual fee, often 1 percent of all assets including investment, retirement, college savings and other accounts that they're minding for you.
Some planners cater exclusively to the rich and refuse clients with less than $250,000 to invest. Don't take it personally — hugely successful planners prefer to deal with big accounts and not beginners. This is why you should be looking for a planner who has time to focus on your concerns and is interested in growing with you.
Financial planners can help you remain disciplined about your financial strategies. Procrastination can cause money problems or lead to unrealized potential — it pays to have someone riding you to stay on track.
What does 1 percent of annual assets get you? A buffet of advice about almost anything related to personal finance. You'll feel it's a sensible fee when you see that you're paying to establish a comfortable retirement, save for your child's college or choose the right mortgage when borrowing hundreds of thousands of dollars for a home. However, this asset-under-management approach is generally only available to those with $1 million or more in assets.
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