10 Tips for Choosing a Financial Planner

First things first…understand your financial goals and needs.

Then, you can choose someone who can meet your goals and needs. For example, if you want your planner to provide investment advice, choose someone who is registered with their securities regulator. If insurance is a priority, look for someone who has an insurance license.

At Scarlett Finacial, we can assist in ALL areas of personal and business finance.

1. Check qualifications: Licenses, credentials or other certifications 

Of the four main types of financial advisors, the certified financial planner (CFP) designation is harder to achieve than Chartered Financial Consultant (ChFC), because the former requires a comprehensive board exam; the latter, however, uses the same core curriculum. If you want someone to manage your money, then look for a registered investment advisor (RIA). If you have a high income or a small business owner, you’ll probably want a certified public account (CPA), who can offer you advance tax planning. The personal financial specialist (PSF) certification is usually obtained by CPAs who want to demonstrate they can help clients with comprehensive financial planning.

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2.  Shop Around – Interview 1 more planner

Whether you are looking for an individual or an automated system, explore a few options before making a commitment. A lot of people choose an advisor based on a referral. Certainly, a friend’s recommendation is a good sign, but you should not set aside your own judgment. The first person you meet, or the first system you try, might seem great – but the second or third might be even better. Especially if you are new to investing, you should check out a couple of different options so you can compare approaches. 

Make sure you feel comfortable discussing your finances with the people you interview. Find out if they provide the services you want. Ask each person about:

  • Their education, experience, and specialties,
  • How many clients they have,
  • How long they’ve been a planner,
  • How often they communicate with clients,
  • What kinds of investment products or services they’re registered to sell, if any,
  • Which organizations they’re regulated by,
  • How they’re paid, and
  • If they’ve been subject to disciplinary action by any regulatory or industry association.

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3. Compare fees: Ask how much do they charge for their services

If you didn’t see this information on the planner’s website, ask whether there’s an initial planning fee, whether they charge a percentage of assets under management, or whether they make money from selling you a specific product. Not only should you know how much the service will cost you, but it can help you determine whether they have an incentive to sell you things.

4. Planners can be paid in several ways:

  • A salary paid by the company for which the planner works. The planner’s employer receives payment from you or others, either in fees or commissions, in order to pay the planner’s salary.
  • Fees based on an hourly rate, a flat rate, or on a percentage of your assets and/or income. 
  • Commissions paid by a third party from the products sold to you to carry out the financial planning recommendations. Commissions are usually a percentage of the amount you invest in a product. 
  • A combination of fees and commissions whereby fees are charged for the amount of work done to develop financial planning recommendations and commissions are received from any products sold. In addition, some planners may offset some portion of the fees you pay if they receive commissions for carrying out their 
    recommendations.

5. Ask for sample financial plan

There is no one set structure for a financial plan, which means there is wide variation. “Some people might give you 50 pages of stuff you don’t understand like charts and graphs, and another planner might provide a five-page snapshot of your financial situation,” says Bera. “With a sample, you can say, ‘I really want that in-depth analysis,’ or ‘I don’t understand that.’”

6. Always find a person who has a good character

“Does he or she talk 90% of the time?” says Wacks. “If it’s more like 60/40 and he has asked you how he or she can help you, that’s really important. Financial planning about looking at the person’s individual circumstance instead of punching in some numbers — it’s based on the client’s goals, financial background, what they believe about money, etc.”

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7. References

Ask for references from clients with similar needs to yours. Find out if the planner works with any other experts, such as lawyers, accountants or insurance agents. Ask for references from these individuals.

8. Understand any conflicts

If your planner is also qualified to buy and sell investments, understand how they choose investments for you. Do they recommend a wide range of investments? Or do they only recommend certain products such as mutual funds from certain companies or only products that their firm sells? Will they make more money if they recommend one investment over another? Do they make money from sales fees every time you buy and sell?

9. Access to experts

No one person, however well trained, has the encyclopedic knowledge required to deal in depth with all the problems that can affect an individual’s financial affairs. Instead, a planner should be able to demonstrate that he or she consults regularly with experts in a variety of fields.

10. Think about risk. Do not be seduced by big numbers.

Take some time to think through your tolerance for risk on your own. The risk is a complicated, abstract concept, so try thinking about what would keep you up at night. For example, would it bother you if the markets are shaky over the next year, and a year from now, your account is down 5 percent? What if two years pass and your account are still down 5 percent? Five years from now, if your account is flat, will you be upset? 

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Look around online for questionnaires that are designed to test your risk tolerance. Take a few of them so you get a feel for the typical allocation your answers suggest. That way, if you get an off-the-wall suggestion, you will recognize it as such. You are not necessarily looking for the same cookie-cutter answer as the allocation you would get anywhere else, but you do want to know an outlier when you see one.

The standard boilerplate language on investment company advertisements says, “Past performance is no guarantee of future results.” It is legalese, but it is also true. Beating the market is nearly impossible to do consistently. Do not look for the system with the best five-year returns; look for a system you can understand and that you feel comfortable with. If you are looking for an individual advisor, you want someone you can speak openly with and who can explain things in a way that makes sense to you. 

One key question to ask any advisor is how tactical or strategic they are.

Being “strategic” tends to mean choosing an allocation and sticking with it over the long term. When advisors make “tactical” bets, they move in and out of investments based on their view of what is happening in the market from week to week. Keep in mind that timing the market is very difficult, and research shows that most active managers do not outperform enough to justify their higher fees. 

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Scarlett Financial is a smart financial services group designed to maximise your financial wellbeing.

We created Scarlett Financial to help people, just like you, make smart investment decisions earlier so that you can experience financial security and enjoy the lifestyle of your dreams.

Your business needs more than a P&L report. Make your business Financially secure the Scarlett Financial way. Book a call today – we look forward to speaking with you!

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