Finding Help with Your Money

Finding Help with Your Money
I often extol the benefits of taking advantage of a professional when it comes to figuring out what to do with your money. The tough part, of course, is figuring out if he or she is really good at the job and how to avoid the money-grubbing self-proclaimed know-it-alls who would have you line their pockets while you scratch your heads. And so we come to a question I received from S:

I have decided that my 2010 New Year's Resolution is to do a complete money makeover: prioritize debt repayment, develop a long-term/short-term savings plan, build an investment portfolio, create a budget and cash flow tracking system, start planning for retirement, and educate myself on tax strategies. I have two questions for you that I hope you will answer:

#1: what are the names/functions of the different types of financial professionals out there? (i.e. I need to know who will try to sell me a financial service/product, who will try to help me sort out my finances, and how I can tell the difference before I make an appointment?)

#2: for a total money makeover like I'm trying to achieve, is it necessary to see more than one type of financial professional or is there an all-in-one person who can help me achieve my goals?

The financial world is filled with an alphabet soup of designations for people who purport to be available to help you. Sometimes, however, these people are only working to help their companies or themselves and so you must be very careful in making your choices.

Here are some of the most common designations you’ll come across and how they may be able to help you, providing you find the right person.
CFP stands for Certified Financial Planner. This designation is recognized in 14 countries around the world. To become a CFP a body must have successfully complete an accredited educational programs (or hold specific professional and educational designations), pass the national exam and have a minimum of two years relevant work experience. CFPs must also adhere to a professional code of ethics and must complete 30 hours of continuing education every year.

RFP stands for Registered Financial Planner, which is an advanced financial planning designation that requires holders to demonstrate their ability to apply their knowledge in the completion of a comprehensive financial plan. Like CFPs, RFPs are subject to annual continuing education requirements and a code of professional ethics. They must also carry professional liability insurance.

PFP stands for Personal Financial Planner, which is a designation created by the chartered banks to add credibility for their staff. PFPs must complete courses in personal financial counseling, insurance, estate planning and taxation. However I’ve met more than a few people with this designation who didn’t understand some of the most basic rules despite having completed the training.

When you work with a fee-only financial planner you’ll pay an hourly or package fee for your advice. Since this person does not make money selling product, they should be focused on trying to help you sort out what it is YOU want.  If you hit a body who seems to be pushing you in a direction you don’t like or offering options you don’t understand, cut your losses and move on.

(Back in March 2008, MoneySense Magazine created a list of fee-only financial planners you might want to check out.)

When you work with someone who is selling products and earning a commission you will likely not be charged a fee, but will have to buy the products and services sold by that individual/financial company. This usually means a more limited range of options.

Whomever you choose, this person should also be willing and able to refer you to specialists in a variety of arenas. For example, if you need help with tax issues, if you want to create an estate plan or if you need insurance, your financial planner should have experts to whom (s)he can refer you. As far as needing to consult with other experts, if your financial planner can’t provide you with a list of resources I’d be very surprised. Most are well connected and work on the “I’ll scratch your back if you scratch mine” referral system.

If you’re looking for someone with whom you can forge a long-term relationship, start by narrowing your prospective list of candidates to about three or four. Start by asking friends, family, colleagues and business associates for the name of the people with whom they deal. If you already have an accountant, ask him or her. If you have a lawyer, ditto. You might also want to take some courses on money taught by financial experts to see if there’s someone whose approach you really like. Read the paper and see who is writing the expert articles or who is being quoted.

Hiring Help
Once you narrow your list down, check your candidate’s credentials and their references. Check with your regional licensing bodies like the Securities Commission or Insurance Commission to see if any complaints have been registered against any of the bodies you are considering.

Now it’s time to interview your short list. A face-to-face will go a long way in helping you get a sense of the person. Will you be comfortable working with this person? Do you like his manner? Do you like her communication style? Finding an advisor whom you respect and trust, and with whom you will enjoy working, is important if you want to have confidence in his or her recommendations.

Be up-front about the fact that you are evaluating several candidates and that you hope to make a decision soon. Expect your candidates to ask you questions too. They'll want to know your priorities in terms of the financial goals you're hoping to accomplish, along with your expectations, and how you'd like to work with them.

While horror stories abound about advisors who don’t know their stuff and who don’t take their fiduciary responsibilities seriously, there are some very good advisors out there.

In my opinion your best bet will be to focus on those who work on a fee-only basis and are willing to draw you up a plan on paper. I think you should avoid anyone with an affiliation in the mutual funds industry since many employees are bound to sell their employer’s funds… often with sales targets that have them churning their clients’ portfolios. And when you’re asking for references, make sure you say, “I’d like one of the three references you give me to be someone very much like me.”

Questions to ask advisors
How will you help me establish my goals and determine my best course of action?
How long have you worked with your most long-lived client?
Do you only provide direction or can you also help me with implementation?
What are your areas of expertise?
What are your greatest strengths?
What are your greatest weaknesses?
What ongoing training and education have you received?
Tell me about the team with which you work for things such as estate planning, tax counseling and investment management?
Do you have a team of professionals such as lawyers, accountants, and insurance specialists with whom you work?
What financial products are you licensed to sell?
Are you limited to selling products for certain companies?
How are you paid?
What is YOUR investment philosophy?
What information will you provide to me to support your recommendations?
How often will you contact me, and how?

Questions to ask references
How long have you worked with this advisor?
Are you happy with the services you’ve been receiving?
What are this advisor’s strong points?
What are this advisor’s weak points?
What have you been disappointed or surprised by in your relationship?
How often do you hear from your advisor?
Who normally initiates the calls, and for what reason?
How quickly are your calls returned?
What is it that you really value about your relationship with your advisor?

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