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Choosing a Financial Planner Research Team | Posted On Tuesday, March 24,2009, 05:12 PM

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Choosing a Financial Planner



Financial Planner

Practically anyone with reasonable wealth or a decent income could benefit from the services of a financial planner. Financial planner means someone with the expertise to make a comprehensive financial plan for an individual household. This plan must cover the household's financial goals, budget, insurance and risk review, asset allocation, review of an estate plan and retirement plan. Such detailed planning is not likely to be met by brokers and agents interested in commissions on financial products they sell.

A financial planner has a wide knowledge of areas such as investments, tax planning, and estate law but is improbable to be the financial professional you require in these individual areas. Rather the financial planner can help coordinate your financial planning with your accountant, investment professional, insurance agent, and estate lawyer. The extensive expertise that a professional financial planner possesses will help you to ensure that your financial goals are met and that all areas of your financial life are analyzed.

Hiring a planner will help you avoid costly financial mistakes that could seriously injure your financial health. It would not be hard for most financial planners to find serious gaps in most household finances, gaps that are easily worth the cost of the planner's services. Even individuals with expert knowledge in one finance field such as investments may fail to notice areas such as insurance or estate planning. A few people have the time, expertise or desire to do a complete financial plan for them. Saying that most would benefit from using a financial planner is not to mean that there are no wide differences in abilities and costs among planners. Few areas will pay wealthier rewards for the public than gaining basic knowledge in personal finance. If one is not careful, fees and commissions could cancel out much of the benefit of using a financial planner.

Steps in Financial Planning

The first step in selecting a financial planner is to limit your search to someone who is certified in financial planning such as Certified Financial Planner (CFP) and the Personal Financial Specialist (PFS).

The second step is to look for recommendations from people that you respect for names of financial planners and interview these planners. Your aim should be to find someone who meets your needs and who will look after your interests.

The third question you need to ask is how the financial planner receives compensation and how much will this compensation cost you annually. In calculating the costs, one should consider fees, commissions, transaction costs, and annual fees of the financial products that they recommend. It is fairly possible that after adding sales loads and management fees, the after-expense return that you receive from equities will not justify the risk you are undertaking.

Financial planners fall into two broad types: fee-only financial planners and commission and/or fee-based financial planners. While some give the preference to fee-only financial planners, it is depend on your circumstances as to which one will be best for you.

If you need a comprehensive financial plan and you are willing to invest your funds yourself, then a fee-only financial planner may be best choice for you. If you want the financial planner to manage your money, than many fee-only financial planners will move to an asset-based fee, normally 0.5% to 1.5%, of your assets. Two factors must be kept in mind. First one is that this fee must be charged annually. Second, most financial planners place your funds to work in a mutual fund and that means you continue to pay the mutual fund another fund management fee annually. Since evidence and theory recommend that none of these efforts will result in outperforming an index mutual fund, one might wonder why not go directly there and save about 2% in fund management fees plus, on average, you will have a mutual fund that will outperform most professionals.

In commission-based financial planning, individuals run the risk that the commissions charged on the financial products (i.e.; financial planners demand) will add greatly to the cost of the financial planning. The risk of conflict of interest occurs when the planner receives greater compensation based on what financial products that they recommend. It may be possible, however, for some individuals that the free or reduced-cost financial plan would not be counterbalanced by the higher commissions. For instance, the one-time load on the mutual fund might be cheaper than paying the annual 1.5% fee to a fee-based financial planner. You should compare all of these costs when deciding which financial planner is the best for you.

From the above given information on financial planners, it is clear that knowledge on the consumer's part is very essential.

Questions to ask While choosing a Financial Planner

The questions given below can help you to effectively interview and assess financial planners to find the one that's right for you. You need to select a competent, qualified professional with whom you feel comfortable, one whose business style suits your particular financial planning needs.


Find out how long the financial planner has been practicing and the number and kinds of companies with which he/she has been associated. Ask the planner to explain past work experience and how it relates to his/her current financial planning practice. Select a financial planner who has at least three years' experience in providing financial planning services.


Ask the planner what qualifies him/her to offer financial planning recommendation and whether he/she holds a financial planning designation, such as CFP or PFS. Look for a planner who has proven experience in financial planning topics such as tax planning, investments, insurance, estate planning, and retirement planning.


The services offered by a financial planner depend on a number of aspects including licenses, credentials, and areas of expertise. Financial planners might be licensed to sell insurance or unit trust products. Some planners offer financial planning advice on a series of topics but do not sell financial products. Others may specialize in a particular area such as retirement planning, insurance or risk management.


Ask the financial planner about the natures of clients with whom he/she has worked and the financial situations with which he/she is familiar. Some planners prefer to develop one plan that considers all of your financial goals. Others provide advice on specific areas, as needed. Make sure the planner's viewpoint on investing is not too cautious or excessively aggressive for you.

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