Financial planners help you save, invest and grow your money. You might hire one for help with a specific goal — readying yourself to buy a house, for example — or to give you a bird’s-eye view of your financial health. Many have an alphabet soup’s worth of letters behind their names while others have none, but one of the most significant credentials is administered by the Certified Financial Planner Board of Standards or CFP Board.
What is a certified financial planner?
A certified financial planner has earned between 4,000 and 6,000 hours of experience, passed the CFP exam, completed a series of educational requirements and maintains high ethical standards.
What does a financial planner do?
Your financial planner may start by asking questions and gathering information to get a holistic understanding of your current finances. He or she may ask for bank statements, tax documents, insurance policies and other financial documents. With this information, the planner will assess your financial goals and compare them with the documents and information you’ve provided. At this point, the financial planner may inform you that changes need to be made or that you’re on track.
If you and your planner agree that changes need to be made, he or she will likely begin implementing some of the items in the plan. This could happen over several meetings, depending on the detail and depth of your situation. If your plan includes creating a will or trust, this could also include consulting an attorney.
Finally, you and your planner will determine how often the plan will be monitored and when changes will be made. Most financial planners meet with their clients annually or quarterly. For clients who have a more complex plan, you might meet more often during the year. Planners also suggest meeting when a major life event occurs: marriage, the birth of a child or a significant change in income.
How much does a financial planner cost?
Financial planners earn their living either from commissions or charging you hourly or flat rates for their services. You might balk at giving someone a percentage of your annual assets to manage them, but advisers who receive a commission may be giving you the most biased advice.
The Department of Labor’s fiduciary rule was an attempt at protecting consumers by requiring that financial planners who provide advice on retirement accounts put their clients' interests ahead of their own. Though the rule has been contested, its effects have already been felt by both financial planners and consumers. Some larger firms have blocked financial planners from earning a commission on retirement accounts altogether, or restricted them to fee-only services. Other companies have allowed for more flexibility, allowing a mix of commission and fee-only, while some have forced consumers to manage their investments on their own.
“What the financial planner is paid will depend on the client’s particular needs,” said Dan Drummond, CFP Board’s director of communications. “The planner should be able to provide the client with an estimate of possible costs based on the work to be performed.”
Here’s a closer look at what the terms mean:
Fee-only: Fee-only financial planners are paid — as the name suggests — a flat fee for their services. This could also be a flat percentage of your total assets or income, known as Assets Under Management (AUM). Or, the fee could be hourly or based on retainer, similar to a lawyer.
Fee-based: These planners charge a flat fee for some of the services they offer but can also earn commissions from the products they sell.
Commission-based: These planners only receive payments through commissions on products they sell. This might present a conflict of interest as some planners may suggest a product that puts their interests ahead of yours.
The difference between a financial planner and a financial adviser
Anyone can hang out a shingle as a “financial planner” or “financial adviser.” With nearly 170 different financial credentials out there and little regulation, advisers can use the terms financial planner, consultant, specialist, or a host of other titles, interchangeably.
“The SEC specifically defines phrases like that as marketing terms,” said Kali Hawlk, founder of Creative Advisor Marketing.
Some people who use the "financial adviser" title are often brokers or sales representatives for big companies you know by name. Many of them are true advisers, but they may be focused on investment management rather than the big picture of your overall financial goals.
Not every person who calls him or herself a financial planner or financial adviser has the CFP credentials, as the designation is optional and not required to practice. Only those who have completed the education, experience, exam and ethics requirements are considered “certified financial planners.”
The important thing is to ask the person you’re considering about their fee structure, experience and any specialties that they may have. Your goal isn’t necessarily to find the person with the right title but the person who is the right fit.
How to find a financial planner
If you’re looking for a financial planner in your area, here are a few places to help you get started.
Let’s Make a Plan: This site was created by the CFP Board and features a database entirely of CFPs. The database also provides some key information such as compensation model and minimum assets needed. Some planners cater to the wealthy. Don’t take it personally — if you’re a beginner client, find someone who is interested in growing with you.
XY Planning Network: XYPN is made up of fee-only financial planners who specialize in serving Gen X and Gen Y clients. All XYPN members can work virtually, which means you can choose the best person for you regardless of physical location.
Garrett Planning Network: GPN’s planners are fee-only advisers who offer their services on an hourly basis.
National Association of Personal Financial Advisors: NAPFA is the largest organization of fee-only advisers who meet the highest standards in the financial planning industry.
Questions to ask your planner
Once you have selected a planner, you’ll probably want a more detailed understanding of how they work, what they will charge you and how their expertise can help you achieve your goals. Here are some questions to get you started:
- Are you a fiduciary? If your financial planner is a fiduciary, it means he or she acts solely in your best interest. If your planner is not a fiduciary, they may have several conflicts of interest that may affect the advice you receive.
- What are your qualifications? You’ll want to be aware of any other designations they may have — this could indicate an additional area of expertise that you may need. For example, a financial planner holding the Certified Public Accountant (CPA) designation might be more attractive if you have a complex tax situation.
- What financial planning services do you offer? You need to be clear in what your planner can and cannot do for you. Unless your financial planner is also an attorney, for example, they are not able to draft estate documents, such as a will or trust.
- What clients do you typically work with? Some planners choose to work with certain groups of people — military families, for example. Others may require you to meet a minimum amount in total net worth or investable assets.
- How are you compensated? As we’ve mentioned, your financial planner should be able to provide an estimate of possible costs for his or her services. “Costs should include the planner's hourly rates or flat fees, or the percentage of commission received on products you may purchase,” according to the CFP Board.