How To Find A Financial Planner?

By FutureNestEgg | August 5, 2008

Finding a good financial planner is not easy. Financial Planners can make or break your savings. Not everyone needs a planner though. But if you feel you need one then proper research needs to be done before selecting your planner. I don’t suggest picking one from the yellow pages (wish it was that easy). Here are some tips to help you pick a financial planner

Accreditation

All financial planners are required to have an Australian Financial Services License (AFSL) issued by Australian Securities Commission (ASIC). Apart from this license, they also have to be members of FPA.

The Financial Planning Association (FPA) is the professional body for financial planners. All its members are guided by the professional standards set by FPA. The members of FPA are either ‘Associate Financial Planners’ (AFP) or ‘Certified Financial Planners’ (CFP). The CFP qualification is awarded to practitioners who meet high standards of education and experience. The FPA website says that CFP accreditation is the ‘gold standard’ in the financial planning profession.

Use the ‘Find A Planner’ service on the FPA website to make a shortlist of planners.

Research Them

Ask around – speak to your friends and see if they can recommend some one. Before you sign the dotted forms, I also suggest that you ‘Google’ their names.

First Meeting

Most financial planners don’t charge for the first meeting. Use this meeting to determine if you can really work with this planner. You need someone with whom you can communicate well…

No amount qualifications and references can help you if you can’t interact with them well or most importantly, if they can’t interact well with you.

Experience

It is within your rights to find out about their experience in the industry. You can also ask them for references from their clients. Ask them the backgrounds of their clients as well – (example are they all close to retirement). This will give you an idea of what their specialty is.

Remember it is like a job interview – You are employing them and not the other way round.

How Do They Get Paid

This is probably the most important question you need to ask them. Financial Planners get paid in one of the following ways:

Fee For Service: They offer you the financial advice and recommend products suitable to your needs. In return you pay them a ‘fee’ for service.
Commission Basis: These planners will not charge you any fees. But they will be paid by the fund manager a commission for recommending their product.

Again, it is well within your rights to find out how they are being paid. A ‘Fee For Service’ planners are independent and usually not associated with any bank or fund manager. So their advice will be unbiased. Having said that, when your ‘fee for service’ planner recommends a product, you can’t assume that they are not receiving a commission – you still need to ask them if they are receiving a commission.

Planners who are paid on a commission basis are more prevalent than the ‘Fee For Service’ planners. They receive a commission from the fund managers. So obviously they will be biased towards the ones that pay higher commission – When the planner recommends a fund, find out what the ‘investment rationale’ is for recommending that over the other funds. Find out how it can suit your needs better than the others.

You basically need to ask questions – Don’t be afraid – It is your money and you cannot trust anyone completely. You need to understand ins and outs of why an investment strategy is being recommended to you.

A lot of financial planners pay back either a part or full commission (that they receive) to their clients – read more about this here – trailing commissions. Find out if your planner will be paying you back his commissions.

Services Offered

Find out if they offer the following:

A Detailed Written Financial Plan
Ongoing Review Of Your Portfolio – Also find out if they will be charging you for this and if so how much.

Diversified Portfolio

Most financial planners will allocate the bulk of your money into managed funds (because thats what they get paid for). As investors we all know the importance of diversification. If your financial plan only includes managed funds and not shares or property then ask them why that is the case.

If you would like to add anything else to the checklist, please do so in the comments area.