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Finding a financial planner

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|> About Money 101

investing 101

  Finding a financial planner
In a largely unregulated field, anyone can hang out a shingle calling themselves a planner. You need to know whom you can trust.

The first practitioner you should consider hiring is a financial planner. That's because the planner is the captain of your financial team, the professional who can best coordinate your goals and resources and advise you on the hiring of other professionals -- unless, of course, like a growing number of planners, they are marketing some of these same services themselves.

Though many well-off individuals live their whole lives without ever speaking to a financial planner, most of these people are making a grievous error of omission. At the outset, planners study a clients' entire financial landscape to assemble an asset-allocation plan: what percentages of liquid assets should be in stocks, bonds and money market funds. They dispense advice on what percentages of these stocks should be domestic or international, how much to hold in small, medium and large companies, and how much the investor should have in short-term versus long-term bonds.

It's advice that no one-size-fits-all calculator or book can possibly provide. Studies have shown that an investor's asset-allocation plan has more impact on returns than any other factor, so hiring the right planner to chart this course -- and help you hold to it -- is the most fundamental investment move you can make.

The right planner is one who is qualified and competent, and who understands your needs. For example, if a planner specializes in advising nonprofit corporations, he's not going to do the best job advising you on your taxable investments.

The first question to ask a planner: Is he or she a fee-only planner, or are investments sold as well? Many consumer advocates warn against the conflicts of interest inherent in wearing an advisory hat and a sales hat simultaneously. Although fee-only planners may have conflicts of their own, there is usually less motivation for them to feather their own nests at your expense. Moreover, the client's goals with these professionals are clear: You go to them for advice, and advice only.

Many fee-only planners charge a percentage of the assets they manage, while others charge an hourly rate. Unless you're going to be doing most of the work yourself and require only occasional guidance, you'll probably be better off paying the percentage.

Yet there is an inherent limitation to fee-only planners. Many people can't afford them. "Fee-only advocates would like us to believe that there is one of their brethren for every potential customer; that's just not true," writes Charles A. Jaffe in The Right Way to Hire Financial Help (MIT Press, 1999).

It is hard for low-net-worth clients to find a fee-only adviser -- despite the fee-only trend, or perhaps because of it. So don't make assumptions about how the counselor exacts his or her fee. Find out up front all the costs associated with products he or she recommends and the overall services.

Next, look for specific credentials. While planners who sell securities and insurance must be licensed, the act of advising clients on their finances is, by and large, an unregulated frontier.

So how can you distinguish one planner from another in terms of credentials? One way is to limit your field of prospects to those who sport the initials CFP. This stands for certified financial planner, and means that the individual is licensed by the Certified Financial Planner Board of Standards, a private group that sets professional and ethical rules.

CFPs must meet requirements for education and experience, pass a licensing examination and agree to abide by the organization's code of ethics. Of course, this doesn't mean that all CFPs are desirable practitioners, but, like board certification for physicians, it gives you a place to start. To confirm that a planner is indeed a CFP or to get a list of those in your region, visit the board's Website.

Next: Brokers who won't break you


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