Let’s face it. As a small business owner today you’re probably having enough trouble keeping up with the daily onslaught of mail, let alone fretting about how well your money is invested. And what about checking to see if you’re saving enough for retirement or looking into ways to trim those hefty taxes you paid last April? If you’ve been doing your own financial planning—or not doing it because of the demands growing a business places on your time—it may be time to delegate the task to a professional.
But who? The prospect of turning over your personal finances to a money guru can fill even the most organized and trusting of individuals with dismay. After all, you’re opening your books—and by extension, your life—to a virtual stranger and entrusting that person with your fiscal future, not to mention all your hard-earned cash. Clearly, you’ll want to consider multiple candidates and vet them carefully. Here’s how:
Follow the Money
How a prospective planner is paid should be among your first considerations. Planners are compensated in one of four ways: commission-only, fee only, fee plus commission, or some combination of both. A planner who makes money only when he or she sells you a product should probably be viewed with suspicion. After all, you want a planner motivated to do what’s best for you—not what’s best for his or her own pocket. That also means someone able to sell you products from a wide variety of sources, rather than an array of products from one company.
The costs of fee-only planners, meanwhile, can range dramatically. Some will charge hourly rates, while others charge a flat rate. Many planners charge a percentage fee—often between 1 percent and 3 percent—based on the value of your portfolio. One advantage of this structure is that it aligns your objectives with those of your planner—if your assets decline in value so does the planner’s fee. Also, if you have a relatively small portfolio, you might do better with a percentage structure rather than a flat fee.
Finally, fee-offset planners are paid a fee, which is then reduced by the amount they earn from commissions. You’ll need to do the math and research your options to decide which fee structure best suits your needs. But the first step is to make sure you fully understand the compensation structure of any planner you are considering. Don’t shy away from asking about this critical point; when you hire a planner you are buying a service—you need to know what it costs.
Creds to Consider
While there are a wide range of designations of financial planners (see box), you’ll want to hone in on a licensed planner whose track record shows a commitment to the field. Certified financial planners, registered investment advisors, securities representatives, and chartered financial consultants are among the designations prospective financial planners may have. While all are representative of a certain amount of experience or training, it’s important to understand that none are awarded by a regulatory agency or government body. That’s one reason it’s crucial to seek a planner who has been in business for five years or more and essential to ask for references (more on that later). Ideally, you’ll want a planner with a clean regulatory record who handles $20 million in assets for more than 60 clients, many of whom are similar to you in terms of net worth and goals. To ensure your planner is up to date on the latest developments in the field, it’s a good idea to work with a CFP (someone certified by the Certified Financial Planner Board of Standards, Inc. as having completed its initial and ongoing certification requirement). You can also check a planner’s regulatory record with the NASD and the SEC.
Consider Your Options
Interview at least three potential planners. To find candidates ask neighbors, friends, or co-workers whose opinions you respect for referrals. Be sure to focus on people similar to you in age, income, net worth, and objectives. You can also look at Barron’ Top 100 Financial Advisors and visit the web sites of the National Association of Personal Financial Advisors (napfa.org) and the Institute of Certified Financial Planners (cfp.net) for potential matches in your area.
Vet the Candidates
Arrange to meet potential planners in their offices rather than your home. Observe how often the phone rings before it’s answered and whether there’s chaos or order. Does the planner throw investment terms around able or is he or she able to communicate with you in layman’s language? Ask if there’s a contract you’ll need to sign and, if so, be sure that you can cancel it in 30 days or less.
When interviewing prospects be sure to ask for the names of some clients you can call for a reference. Keeping in mind that no planner will give you a negative source, plan to use these referrals to verify basic facts, such as how quickly he or she returns calls, how thoroughly questions are answered, and what it’s like to work with the planner.
Instinct
Finally, don’t ignore your gut. Working with a financial planner is a very personal process—which means it’s critical to find you someone you’re comfortable with. A planner who tries to wow you with an impressive sales pitch and rush you out the door isn’t likely to be more generous with his or her time down the road. •
Financial Planner Designations Defined |
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CFA - Chartered Financial Analyst |
ChFC - Chartered Financial Consultant |
PFS - Personal Financial Specialist |
CFP - Certified Financial Planner™ |
CLU - Chartered Life Underwriter |
QFP - Qualified Financial Planner |
CFS - Certified Fund Specialist |
CMFC - Chartered Mutual Fund Counselor |
RFC - Registered Financial Consultant |