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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 ICFP 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 ICFP 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 ICFP 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 ICFP 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 ICFP Registered Practitioner as your advisor
of choice. We thank you for contacting us to help you with your
important deliberations.
Financial
Planning Association, 7600 E. Eastman Avenue, Suite 301 Denver,
Colorado 80231. Phone 800-282-7526 (PLAN) or click here for the
Planner
Search.
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