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Picking a good planner
February 28, 2001: 8:39 a.m. ET

Look at totality of person's background, ask questions before deciding
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NEW YORK (Bankrate) - You've made the decision to hire a pro to get your finances on track and make that nest egg grow into something that will carry you happily through retirement. Now what do you do? How do you find the right person to trust with your hard-earned money?

Barb from Haddonfield, N.J., decided to go to a financial planner when she began working at a new job, and went to a fellow who was recommended by a friend.

  Look at the totality of the prospective advisor's background -- their education, continuing education, experience and associations they belong to.  
  Gary Schatsky of NAPFA  
"Options were part of the compensation package and I didn't understand them very well," Barb says. "I knew I would be making considerably more money at the new job and I wanted to do a lot of things -- start a retirement fund, save for a house, and get out of debt. I had close to $15,000 in credit card debt from college. I wanted someone to take an objective look at what I was making and spending."

What Barb got was a not-so-uncommon awakening to the negative side of financial planning.

"When I spoke to him on the phone he made it very clear that unless I had a lot of money to invest he wasn't interested in talking to me," Barb said.

Barb's relationship with the financial planner ended with the phone call.

It could have been worse.

Anyone can play 'the planner'

There are countless stories of people -- including highly publicized reports of movie stars and professional athletes -- getting fleeced by financial planners.

There are no federal standards governing all areas of financial planning. If someone charges a fee to dish out investment advice, they have to register with the Securities and Exchange Commission or their state securities agency, but there are no rules saying that person needs to have a certain level of education or have passed certain exams.

"It's not like law or medicine where there are extraordinary standards," says Gary Schatsky of NAPFA, the National Association of Personal Financial Advisors.

Financial planning is one of the fastest growing fields in the country. There are some 200,000 to 300,000 people who make a living under the broad category of financial planners, and the government expects the field to grow more than 36 percent by 2008.

"Look at the totality of the prospective advisor's background -- their education, continuing education, experience and associations they belong to."

Common financial planning industry designations*

CFP -- Certified Financial Planner: Must meet education, examination, experience and ethics requirements set by the Certified Financial Planner Board of Standards.

CFA -- Chartered Financial Analyst: Securities analysts, money managers and investment advisers who focus on the investments and securities of particular companies or industry groups.

ChFC -- Chartered Financial Consultant: A designation used by financial professionals, including accountants, attorneys, bankers, insurance agents and brokers, who have completed certain education and experience requirements and have agreed to a code of ethics.

Estate Planning Professional -- Devises a plan for the handling, disposition and administration of assets at the time of an individual's death. Estate planning professionals usually practice accounting, financial planning, insurance, law or trust banking.

Financial Adviser -- A generic term used broadly by consumers and financial services professionals to describe individuals engaged in providing financial advice, services or products to a client for compensation.

Investment adviser -- An individual or firm providing securities advice for compensation as part of a regular business of giving investment advice.

*From the Certified Financial Planner Board of Standards

Certified financial planner is probably the designation most people are familiar with and look for when seeking financial advice.

The Denver-based, 36,800-member Certified Financial Planner Board of Standards is a professional regulatory organization that licenses CFPs and investigates complaints against them. Spokesman Doug Nogami says they investigated 251 disciplinary cases last year.

"Of those, 59 resulted in disciplinary action. In the rest, the review board felt there was either no wrongdoing or not enough evidence to take disciplinary action. There were 22 private censures -- warnings that if the action comes up again there might be reason for public discipline."

Nogami says unsuitability and misrepresentation are the two major complaints.

An example of unsuitability would be convincing an 80-year-old person to buy a certificate of deposit with a 10-year maturity. Misrepresentation would be convincing a risk-averse client that the latest no-track-record tech stock is a safe bet.

Checking them out before you check in

If you're considering a financial planner who has the CFP trademark, you can check that person's standing at the CFP Board of Standards Web site. The site also lists any type of disciplinary action that's been taken against an individual.

If someone is managing your money, there's a good chance they're registered with the SEC. Firms managing more than $25 million must register with the SEC. That accounts for 95 percent of all the money that's managed by investment advisers, according to SEC spokesman John Heine. Firms that manage less than $25 million have to register with their state securities agency.

  If the planner's reputable they'll have no problem providing you with that information.  
  Heather Almand  
The SEC recommends that you check an adviser's registration form, called "Form ADV," before hiring an adviser. The form has information about the person's education, business, and whether they've had problems with regulators or clients. You can order a copy from the SEC's Office of Public Reference, (202) 942-8090. There's a fee for copying and mailing. Or, you can ask the advisor for a copy.

If your planner is a broker, the NASD Investor Alert section has background and disciplinary action information in the Central Registration Depository. There's also an online form you can use to file a compliant. You also can call the NASD at (800) 289-9999 for information.

If you're considering a meeting with a financial adviser, the SEC has pages of tips including a list of questions to ask prospective advisers.

Remember, you're in the driver's seat -- you're hiring someone for the job of managing your finances. Don't base such an important decision on a newspaper or phone book ad. Even relying on a friend's experience can be risky as Barb from New Jersey found out. What works for someone else might not work for you. It's a personal decision only you can make.  graphic