12 Questions to Consider When Selecting a Certified Financial Planning Professional
Congratulations! By seeking information on how to select a qualified financial planning professional, you’ve taken the first step toward financial security for you and/or your family. The Financial Planning Association (FPA) is pleased to assist you in your search for the planner best suited to help you accomplish your financial goals and objectives.
The answers to the following 12 questions will provide you with some valuable information to aid you with your very important pending decision: who you will select to provide you with guidance and consultation on your future financial planning needs.
1. Are all financial planners the same?
No! Be wary of people who call themselves financial planners with the intent of pushing a particular financial product at the expense of your real needs. True financial planning professionals have an ethical obligation to hold your financial interests above their own.
Moreover, not every financial planner is a CERTIFIED FINANCIAL PLANNER™ professional. To earn the prestigious CFP® designation, an individual must complete an extensive course of study and be tested on their knowledge in areas such as tax management, employee benefits, retirement planning, estate planning, investment management, and insurance – areas all comprised within the financial planning process. With a command of these segments, the CFP® practitioner is well prepared and qualified to provide you with sound, professional advice.
2. Aren’t all financial planners regulated?
While there has been much discussion on federal and state levels for the need to regulate individuals who hold themselves out as financial planners, there has been little action to date. Many financial professionals are licensed on the state and federal levels within subsets of financial planning, such as insurance and securities, but they are not regulated for their financial planning activities – with the exception of the CERTIFIED FINANCIAL PLANNER™ practitioner who is licensed by the Certified Financial Planner Board of Standards, Inc. (CFP Board). By virtue of their CFP® license granted by the CFP Board, CFP® professionals are held accountable to the CFP Board’s Code of Ethics for their financial planning activities.
You should also be aware that the Securities and Exchange Commission (SEC) and most states have requirements for investment advisers, a category under which financial planners fall. The Institute advises you to make sure the planner you choose has met these requirements as an individual practitioner or as an agent of a company which has filed for investment adviser status.
3. What can a CERTIFIED FINANCIAL PLANNER™ professional do for me?
A CERTIFIED FINANCIAL PLANNER™ can serve you in a variety of ways. The planner can help you work toward meeting a special financial goal or need such as funding for your child’s college education, deciding whether early retirement can be accomplished, or how you can reduce your tax burden. Or, the planner can analyze your overall financial picture and develop a comprehensive plan to meet your short and long-term needs focusing on areas such as taxes, estate planning, investments, and insurance. Some planners can assist you with managing your investment portfolio on an ongoing basis.
Whatever your needs, the relationship between you and your financial planner should be an ongoing one, including periodic review of any plan or strategies you have chosen.
4. What credentials and education should a CFP® professional have?
Most CERTIFIED FINANCIAL PLANNER™ professionals have earned a four-year college degree in areas such as accounting, economics, business administration, marketing, or finance. Additionally, they have completed the CFP® educational program, administered by the CFP Board. This program leads to approval of the use of the CFP® designation. More and more colleges and universities are offering educational programs and degrees in financial planning related fields that are registered with the CFP Board.
In order to actively use the CERTIFIED FINANCIAL PLANNER™ mark, an individual must meet what we call the four E’s in order to be licensed by the CFP Board. The four E’s comprise the following:
- Examination: An individual must successfully complete the CFP Board’s comprehensive certification examination program, which tests the individual’s knowledge on various key aspects of financial planning.
- Experience: Depending on the level of degree work completed in a collegiate setting, an individual must acquire anywhere from one to five years of financial services experience prior to receiving the right to use the CFP® mark.
- Ethics: An individual must voluntarily ascribe to the CFP Board’s Code of Ethics, and additional requirements as mandated from time-to-time. This voluntary decision empowers the CFP Board to take action if a CFP® licensee should violate the Code of Ethics. Such violations could lead to disciplinary action, including the permanent revocation of the right to use the CFP® mark.
- Education: A CFP® licensee must obtain 30 hours of continuing education every two years in the body of knowledge pertaining to financial planning areas such as estate planning, retirement planning, investment management, tax planning, employee benefits, and insurance.
Compliance with these four all-important E’s assures you that an individual who holds the CFP® mark is qualified to practice financial planning.
5. How do I choose the right CERTIFIED FINANCIAL PLANNER™ professional for me?
An CFP® Registered Practitioner is an individual who is in the public practice of financial planning and is required by the Institute to provide advance written disclosure to you of how they practice financial planning prior to establishing a formal relationship.
6. What should the term “full disclosure” mean to me?
As the person who will make the ultimate decision to work with a financial planner, you should be armed with as much information as you can obtain to help you make an educated choice. Not only is it important for you to interview financial planners in person, you should also have the same basic information, for comparative purposes, on every planner you visit with a written format before you make your decision.
This basic information should provide you with background on the planner’s education, work experience, business philosophy, manner of compensation, and situations where there may be real or potential conflicts of interest. This is what the Institute means by full disclosure.
If you do not receive full disclosure from a financial planner, this is a sign that you should take your financial planning needs elsewhere.
7. Should I ask a financial planner for references?
If references are an important part of your ability to make a decision, you should look at a variety of options to gain more information.
Ask for references from friends or business associates who may have used a financial planner. Because of the complexity of financial planning, a planner may consult with other qualified specialists such as attorneys, accountants, banking professionals to help coordinate a client’s plan. These specialists are good references. Check with the SEC, appropriate state agencies, Better Business Bureau, or the CFP Board to determine if complaints have been filed against the planner.
8. Do financial planners specialize in a certain type of client or service?
Many do. They might concentrate on their efforts on a particular profession, income level, age group, or area of planning such as retirement, divorce, or asset management. This is why it is important for you to interview prospective planners in person to find the right one to serve your needs.
9. Is the planner’s method of compensation something I should be concerned with? What method of compensation do you recommend?
Of course. Before you enter into a relationship with a financial planner, you should have a very clear understanding of how he or she will be compensated for their work. An FPA Registered Practitioner will provide you with this information prior to starting a working relationship with you.
The Institute has no formal position on the merits of any form of compensation. Instead, it is our belief that the competence of the planner should be the primary consideration in your selection process. Armed with full disclosure from an CFP® Registered Practitioner, you, as an interested consumer, have the final say in selecting a financial planner, taking into account your comfort level with the knowledge and experience of the planner and the compensation arrangement that best suits your needs. Different planning situations, lifestyles, and age levels have a major impact on every individual’s decision to do business with and compensate their financial planning professional.
10. How are financial planners compensated?
There are several commonly accepted methods:
Fee-only: The planner is compensated entirely from fees for purposes of consultation, plan development, or investment management. These fees may be charged on a hourly or project basis depending on your needs, or on a percentage of assets under management.
Commission-only: There is no charge for the planner’s advice or preparation of a financial plan. Compensation is received from the sale of financial products which you agree to purchase in order to implement financial planning recommendations.
Fee-offset: Compensation received in the form of commissions from the sale of financial products are offset against fees charged for the planning process.
Combination Fee/Commission: A fee is charged for consultation, advice, and financial plan preparation on an hourly, project, or percentage basis. If you choose to implement your plan through this type of planner, he or she may receive commissions from recommended products targeted to achieve goals and objectives.
Salary: Some planners work on a salary basis for financial services institutions such as banks, credit unions, and other related organizations.
In all of the above categories of compensation, you should request information on any real or potential conflicts of interest. In addition to commissions received from financial product sales, you should ask whether there are outside incentives or bonuses to be gained by the planner for certain recommendations.
11. What information should I obtain as a result of an initial interview with a planner?
In addition to requesting a disclosure document from a financial planner, you should prepare a list of questions, such as the following:
- What is your business philosophy?
- What areas do you specialize in as a planner?
- What professional affiliations do you maintain?
- Are you a member of the Institute of Certified Financial Planners?
- Are you listed as an CFP® Registered Practitioner?
- How will you incorporate my particular situation into the financial planning process?
- How do you prepare a plan? How extensive is it?
- Do you personally research products you recommend?
- How often will we meet as a result of my situation?
- How are you compensated for your various services?
Not only is the content of the answers you receive from the planner during your interview important, but you should take note of the rapport that you initially develop.
12. How should I use the biographical information you have provided to me on local FPA Registered Practitioners?
The biographical data provides a brief look at each planner’s background, education, and philosophy of business. Use the data as preparation for interviews you would conduct. We recommend that you interview each planner referred to you in person.
Your request for FPA Registered Practitioners is based on special zip code sorts selecting planners in your specific area. However, if the names provided are not sufficient for your needs, you may request additional names of planners by calling Planner Search, our national toll-free consumer assistance line, 1-800-282-7526 (PLAN) or visit Planner Search. We can also handle special requests for planners in another geographic area.
Choosing a financial planner is as important as choosing a doctor or a lawyer. This guide can help you carefully analyze the attributes and abilities of each planner you interview and determine whether the planner is right for you. Ultimately, the quality of any financial planning relationship rests with you.
We encourage you to select a CERTIFIED FINANCIAL PLANNER™ professional who uses the term CFP® Registered Practitioner as your advisor of choice. We thank you for contacting us to help you with your important deliberations.