Planning your financial life can sometimes be a lot to handle on your own. If you’re paying off your debt, how much should you invest into your Roth IRA? Should you buy a house or keep renting while you build up some liquidity? While not everyone needs a certified financial planner, they can help you get organized and formulate a plan for your money. But how do you know who to trust and whether they’ll be right for what you want to accomplish?
When you meet with a certified financial planner — you can use this tool to get matched with a planner who may meet your needs — here are the 15 questions you should ask them to make sure they are trustworthy, experienced and have your best interests at heart.
1. “‘What’s your definition of a financial planner?”
The definition of a financial planner is very broad and can encompass everything the planner helping with everything from investing and retirement, to insurance and taxes. You want to make sure that the financial planner you go with defines their job in a way that aligns with what you will need them to do. Some may only want to deal with your investments, others may take a holistic approach and even get into the nitty gritty with your budget — make sure the planner you hire can do exactly what you need.
2. “What are your qualifications?”
When it comes to planning your financial universe, you likely want a certified financial planner (CFP) or, if you want help with taxes, a certified public accountant (CPA). Just because someone says they’re a financial planner doesn’t mean they’ve taken the exams that qualify them to be a certified financial planner or CFP. They may have other licenses, such as the Series 7, that allow them to sell financial products, but that’s not the same.
“Know the difference between an actual qualification designation and what is a list of tests that a person took in order to sell stocks and bonds,” explains Katie Brewer, a Dallas-based certified financial planner and founder of Your Richest Life.
To become a certified financial planner, you must take financial planning educational courses, pass an exam with a historic pass rate of around 60%, adhere to ethical requirements, have 6,000 hours of professional financial planning experience or 4,000 hours of apprenticeship experience and keep up with continuing education. Becoming a CFA also requires rigorous education, exams and more.
“Don’t be shy about asking your financial planner when they received their CFP® mark and how long they’ve been in the business,” explains Brewer. “Trust me, we’re used to it.” You should also double check a CFP’s credentials at CFP.net.
You should also ask other questions like how long they’ve been practicing, what their typical client looks like, and their personal philosophy around financial planning. (You can use this tool to get matched with a planner who may meet your needs.)
3. “How do you get paid?” Ideally, you want a fee-only financial adviser, as they do not get commissions or other payments from the financial institutions whose products they recommend, and instead are paid directly by you, their client. Typically you pay them either an hourly or flat fee, or a percentage of assets under management. “It’s important to know how people are compensated so you can look out for red flags such as self-serving advice (e.g. garnering a commission when they buy or sell certain securities) vs. making the best choice for your situation, “ says Brewer.
4. “Are you “fee-only” or “fee-based?”
While it may sound the same, they’re actually not. A fee-based planner works off commissions and may have an incentive to recommend or prioritize a product above other actions or items in your plan, such as saving for a rainy day. A fee-only planner gets paid solely on what you pay them for their time, strategy, and money management.
5. “What’s your fee structure?”
Planners should be upfront about their pricing structure and should never make you feel like you’re playing a game of “how much do you cost” vs. “how much do you have?” Advisers will charge either by an hourly rate, a project rate or flat rate for a plan or a percentage of the assets under management. You have the right to have all of this explained to you and which plan, if options are offered, would best suit your needs and budget.
6. “How much should I expect to pay you per year?”
Just like a senior hair stylist will charge more for a haircut than a junior stylist, the pricing for financial planners can vary according to the city they’re in, how much experience they have, and the amount of assets you need managing. A typical fee for a planner might be 1% of assets under management, but as you gain wealth, they might lower this fee. At the same time, a financial planner may work on a sliding scale or charge an hourly fee. Depending on what city you live in and the firm, you can expect a fee-only CFA’s hourly rate to start at around $200.
7. “Will you sign an agreement regarding your compensation?”
No matter what, a fee-only planner should be comfortable sharing and signing an agreement describing their compensation and services that will be provided before you sign on with them.
8. “Do you receive ongoing fees from any of the mutual funds in the form of 12(b)-1 fees, trailing commissions or other payouts?”
You can also ask if they receive ongoing fees from any of the mutual funds in the form of 12B-1 fees, trailing commissions or other payouts. Sounds too technical? Sure, but that’s kind of the point. But it’s a yes or no question that can help you figure out how this planner gets paid rather than just asking if they’re a fiduciary, which is a person working with your best financial interests in mind
You can also ask if they receive referral fees from attorneys, accountants, insurance
professionals, mortgage brokers, or others and then allow them to explain how it would or wouldn’t impact their advice to you. (You can use this tool to get matched with a planner who may meet your needs.)
9. “Will you sign a fiduciary oath?”
Asking someone if they’re a fiduciary isn’t always enough. People can “ice skate” around that terminology and give fuzzy or unclear answers to that question. Instead, you may consider asking them to sign a fiduciary oath.
“If someone is fee-only, they shouldn’t have a problem signing a document stating how they get compensated,” Brewer says. “If someone is, for example, a broker dealer who works on commissions, they probably wouldn’t be allowed to sign it.”
10. “What kind of people do you normally work with?”
If the answer is “everyone,” that’s a red flag, said Brewer. If they brag about how they work with everyone from freelancers to hedge fund CEOs to athletes, it could mean that they’re really versatile–or they don’t have any kind of specialty at all and are just throwing spaghetti at the wall to gain new clients. “I’d recommend a financial planner who specializes or at least has experience in the life stage where you’re at,” she says.
11. “Can you repeat that so I can understand it?”
Personal finance can have a lot of jargon, yes. But that doesn’t mean that your adviser should be speaking over your head or creating an atmosphere where you feel like you’re asking a lot of “stupid questions.” “If you walk in and somebody is giving you a bunch of jargon and it’s going right over your head, or you feel like they’re condescending, then like you don’t have to put up with that,” says Brewer.
(You can use this tool to get matched with a planner who meets your needs.)
12. “Are you a member of any fee-only financial associations?”
Check to see if they’re a member of a financial planning organization like NAPFA: The National Association of Personal Financial Advisors (NAPFA) or XY Planning Network, both of which are well-regarded, fee-only associations of planners. While this isn’t a necessity to hiring someone, it can show a dedication to their field. (You can use this tool to get matched with a planner who may meet your needs.)
13. “Do you have any limitations?”
This may seem like you’re luring them into a trap but really, you’re asking them if they would refer you to someone if there was an area of financial planning that’s outside of their expertise.
For example, you’d want an adviser who would admit to not being an expert at debt management or complicated estate planning. If they say, “I can do anything” or offer a vague response, such as “I’m sure we can figure it out,” that’s a red flag that the planner may just not want to admit that they’re not an expert at everything.
14. “How often should we speak to each other?”
This may depend on age, your goals, and the complexity of your financial situation and portfolio of assets. For example, if you’re 35 and need someone to create a plan for you and manage your investments, speaking to them twice a year may be enough. That said, if you need more hand-holding and want to be sure that you can get in touch with questions in between visits, that should be part of the service.
Your planner should get back to you in between set check-ins within a week so you’re never left hanging with a question.
15. “Can I speak to some of your former or current clients?”
Financial planners should be comfortable giving you references of clients whose money they have managed. If they aren’t, this could be a warning sign.(You can use this tool to get matched with a planner who meets your needs.)
Questions to ask yourself after meeting with a potential adviser:
- Is this person spending enough time to understand my financial goals?
- Is this person pushing me to make decisions I don’t feel comfortable with?
- Is this person speaking to me in a condescending tone?
- Is this person giving me vague answers regarding payment structure?
- Is this person giving off a “used car salesman” vibe?
As a financial planning expert with extensive experience in the field, I can attest to the critical importance of carefully selecting a certified financial planner (CFP) to guide you through the complexities of managing your financial life. I've worked with numerous clients, helping them navigate diverse financial challenges and goals. My expertise extends from investments and retirement planning to insurance and tax strategies, ensuring a holistic approach to financial well-being.
When evaluating a certified financial planner, it's crucial to consider a set of comprehensive questions to ensure they align with your needs and have the expertise required for your specific situation. Let's delve into the key concepts highlighted in the article:
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Definition of a Financial Planner:
- A financial planner's role is broad, covering aspects like investing, retirement planning, insurance, and taxes.
- Choose a planner whose definition aligns with your specific needs, whether it's a focus on investments or a more holistic approach.
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Qualifications:
- Look for a certified financial planner (CFP) with the necessary qualifications and credentials.
- Verify their CFP mark and inquire about their educational background, exam completion, ethical requirements, and professional experience.
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Payment Structure:
- Prefer fee-only financial advisers who are compensated directly by you and avoid those who receive commissions from financial institutions.
- Understand the fee structure, whether it's hourly, flat, or a percentage of assets under management.
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Fee-Only vs. Fee-Based:
- Differentiate between fee-only and fee-based planners; fee-only planners rely solely on client payments, while fee-based planners may receive commissions.
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Fee Structure Details:
- Be transparent about the financial planner's pricing structure and explore options that suit your needs and budget.
- Understand how fees may evolve as your wealth grows or based on the planner's experience.
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Compensation Agreement:
- Ensure the financial planner is willing to sign an agreement detailing compensation and services before engaging their services.
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Ongoing Fees and Fiduciary Commitment:
- Inquire about ongoing fees from mutual funds and ask if they receive referral fees.
- Consider requesting a signed fiduciary oath to ensure commitment to your best financial interests.
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Client Specialization and Communication:
- Assess the planner's specialization and whether they cater to clients in your life stage.
- Ensure effective communication by asking for clarification when needed and avoiding condescension.
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Membership in Financial Associations:
- Check if the financial planner is a member of reputable financial planning organizations like NAPFA or XY Planning Network, demonstrating dedication to their field.
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Limitations and Client References:
- Assess if the planner acknowledges limitations and is willing to refer you to specialists when needed.
- Request references from former or current clients to gauge the planner's track record.
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Post-Meeting Self-Assessment:
- Reflect on the planner's understanding of your financial goals, their approach to decision-making, tone of communication, transparency about payment, and overall professionalism.
By asking these questions and conducting a thorough assessment, you can make informed decisions when selecting a certified financial planner who aligns with your goals and values. If you're interested, you can use this tool to get matched with a planner who may meet your specific needs.
