By Lindsay Goldwert
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Planning your financial life can sometimes be a lot to handle on your own. If you’re paying off your debt, how much should you invest into your Roth IRA? Should you buy a house or keep renting while you build up some liquidity? While not everyone needs a certified financial planner, they can help you get organized and formulate a plan for your money. But how do you know who to trust and whether they’ll be right for what you want to accomplish? ( Use this tool to get matched with a planner who meets your needs. )When you meet with a certified financial planner, here are the 15 questions you should ask them to make sure they are trustworthy, experienced and have your best interests at heart.
1. “ ‘What’s your definition of a financial planner?”
The definition of a financial planner is very broad and can encompass everything the planner helping with everything from investing and retirement, to insurance and taxes. You want to make sure that the financial planner you go with defines their job in a way that aligns with what you will need them to do. Some may only want to deal with your investments, others may take a holistic approach and even get into the nitty gritty with your budget — make sure the planner you hire can do exactly what you need. Use this tool to get matched with a planner who meets your needs.
2. “What are your qualifications?”
When it comes to planning your financial universe, you likely want a certified financial planner (CFP) or, if you want help with taxes, a certified public accountant (CPA). Just because someone says they’re a financial planner doesn’t mean they’ve taken the exams that qualify them to be a certified financial planner or CFP. They may have other licenses, such as the Series 7, that allow them to sell financial products, but that’s not the same.
“Know the difference between an actual qualification designation and what is a list of tests that a person took in order to sell stocks and bonds,” explains Katie Brewer, a Dallas-based certified financial planner and founder of Your Richest Life .
To become a certified financial planner, you must take financial planning educational courses, pass an exam with a historic pass rate of around 60%, adhere to ethical requirements, have 6,000 hours of professional financial planning experience or 4,000 hours of apprenticeship experience and keep up with continuing education. Becoming a CFA also requires rigorous education, exams and more. Use this tool to get matched with a planner who meets your needs.
“Don’t be shy about asking your financial planner when they received their CFP® mark and how long they’ve been in the business,” explains Brewer. “Trust me, we’re used to it.” You should also double check a CFP’s credentials at CFP.net.
You should also ask other questions like how long they’ve been practicing, what their typical client looks like, and their personal philosophy around financial planning.
3. “How do you get paid?” Ideally, you want a fee-only financial advisor, as they do not get commissions or other payments from the financial institutions whose products they recommend, and instead are paid directly by you, their client. Typically you pay them either an hourly or flat fee, or a percentage of assets under management. “It’s important to know how people are compensated so you can look out for red flags such as self-serving advice (e.g. garnering a commission when they buy or sell certain securities) vs. making the best choice for your situation, “ says Brewer.
4. “Are you “fee-only” or “fee-based?”
While it may sound the same, they’re actually not. A fee-based planner works off commissions and may have an incentive to recommend or prioritize a product above other actions or items in your plan, such as saving for a rainy day. A fee-only planner gets paid solely on what you pay them for their time, strategy, and money management. Use this tool to get matched with a planner who meets your needs.
5. “What’s your fee structure?”
Planners should be upfront about their pricing structure and should never make you feel like you’re playing a game of “how much do you cost” vs. “how much do you have?” Advisors will charge either by an hourly rate, a project rate or flat rate for a plan or a percentage of the assets under management. You have the right to have all of this explained to you and which plan, if options are offered, would best suit your needs and budget.
6. “How much should I expect to pay you per year?”
Just like a senior hair stylist will charge more for a haircut than a junior stylist, the pricing for financial planners can vary according to the city they’re in, how much experience they have, and the amount of assets you need managing. A typical fee for a planner might be 1% of assets under management, but as you gain wealth, they might lower this fee. At the same time, a financial planner may work on a sliding scale or charge an hourly fee. Depending on what city you live in and the firm, you can expect a fee-only CFA’s hourly rate to start at around $200.
7. “Will you sign an agreement regarding your compensation?”
No matter what, a fee-only planner should be comfortable sharing and signing an agreement describing their compensation and services that will be provided before you sign on with them.
8. “Do you receive ongoing fees from any of the mutual funds in the form of 12(b)-1 fees, trailing commissions or other payouts?”
You can also ask if they receive ongoing fees from any of the mutual funds in the form of 12B-1 fees, trailing commissions or other payouts. Sounds too technical? Sure, but that’s kind of the point. But it’s a yes or no question that can help you figure out how this planner gets paid rather than just asking if they’re a fiduciary, which is a person working with your best financial interests in mind
You can also ask if they receive referral fees from attorneys, accountants, insuranceprofessionals, mortgage brokers, or others and then allow them to explain how it would or wouldn’t impact their advice to you. Use this tool to get matched with a planner who meets your needs.