One of the topics on the last Confab Show (www.confabshow.com) was on what is financial planning and how do people pay for this type of advice. Like a lot of good questions, the answer is "it depends." There are three main ways that poeple in the financial services industry get compensated: fee-only, fee-based, and commission. Fee-only means that you pay a fee for services, by flat fee, hourly and/or a percentage of assets under management. Commission is paid whenever you do a transaction. Fee-based is somewhere between fee-only and commission.
Another question was, "what is a financial planner?" Unfortunately, this is a very broad label and many people not only consider financial planning many things, but many advisors call themselves financial planners. According to the Certified Financial Planning (CFP(R)) Board, "financial planning it the process of meeting your life goals through the proper management of your finances." Topics such as investment management, retirement planning, estate planning and tax planning are examples of elements contained in financial planning analysis. There are advisors that help you take a big picture view of your financial situation and develop strategies to reach your goals. How comprehensive or detailed this process is, depends on your needs. On the other end of the spectrum, there are advisors that only focus on one topic of planning.
How do you find a financial planner and what questions should you ask? One great resource is the CFP (R) Board of Standards. There mission is to educate the public and monitor certificants with the CFP (R) designation. They even have a checklist of questions that you can use when interviewing professionals. Some of the questions are:
- What are your credentials and experience? Don't be afraid to ask what those credentials mean. Some credentials have extensive requirements and some may be an online course.
- How do you get compensated? Do you receive a commission every time you sell me a product? Do you charge flat or hourly fees?
- What types of clients do you work with?
The initial meeting with a potential planner should allow you to get to know this professional. Besides competence and experience, you need to find someone with whom you feel comfortable. This person needs to know many details of your life and dreams, so you need to feel that you can share all this information with them. In this type of planner/client relationship, a quote from the movie, Jerry Macguire comes to mind, " help me, help you." You should be able to ask questions and understand the process, so you can make educated decisions that effect your life.
