Choosing a Financial Planner for Your Future Retirement

Designations (training/certifications) for Financial Planners

Certified Financial Planners or Advisors must demonstrate that they have undergone in-depth training and competency testing in financial planning and investment management. It is recommended that an advisor must hold the Certified Financial Planner™ designation. Many advisors hold other degrees and designations, including the following:

  • Certified Public Accountant (CPA)- A CPA is an experienced accountant that has met strict education and licensing requirements. A CPA will be a good choice for tax issues.
  • Personal Financial Specialist (PFS)- CPAs can undergo additional financial planning education and after passing meeting exam and experience requirements can use the CPA/PFS designation.
  • Certified Financial Planner (CFP)- The CFP is one of the most respected financial planning designations that requires a minimum of three years of experience, follow a strict code of ethics, and pass a series of three exams. These individuals will be able to provide a broad range of financial advice.
  • Chartered Financial Consultant (ChFC)- These are typically insurance professionals who specialize in some aspects of financial planning by meeting additional education requirements in economics and investments.
  • Chartered Retirement Planning Counselor (CRPC)- A CRPC designation is offered through the College of Financial Planning to allow planners to specialize in retirement planning. These individuals must also pass an exam and meet a strict code of ethics.

These are the most common designations in use, and there are over 50 designations more common designations in use. Just remember that if you see a designation that is unfamiliar, ask for clarification it is your funds being discussed and you should know their training and who has certified their credentials

Financial Planner Compensation Methods

Financial planners may receive fees, commissions, or both, and the distinction between them is important to you, because it may affect your cost and the service you receive.

  • Fee-only: This can be an hourly fee, a flat fee for a comprehensive plan or an annual retainer amount. “Fee-only” planners charge a fee for their services, but don’t receive a commission when you purchase a product. The advantage is that you may get more objective advice, however a disadvantage may be that the planner may have little incentive or detailed training to help you follow and implementing you plan, and may lack the ability to coordinate all facets of its implementation. Hence you may pay twice one to them for the basic planning and again for other assistance for implementation.
  • Commission-only: A commission-only planner earns his or her compensation when you actually purchase an insurance or financial product, such as a mutual fund, from him or her. When dealing with commission-only planners, exercise caution because their only source of income is the revenues generated from selling. In some cases commission – only “planners” are seldom planners at all, but are focused solely on the products they sell.
  • Fee and commission: Also known as fee-based planning, this is the most popular form of financial planning compensation. The planner earns an hourly fee for meeting with you and providing advice as well as commissions on financial products you may purchase.
  • “Fee-based” planners charge you a fee that’s enough to fairly compensate for planning work, but they may also get a commission on any products you purchase. By law, their “engagement letter” must disclose conflicts of interest and all terms relating to the engagement, allowing you five business days for a full refund of any fees paid. The disadvantage here is that you will need to be sure you understand fees, loads, charges, and expenses of any recommendations offered. The advantages will probably include increased convenience, one-stop service, broader competencies, and increased influence when it comes to representing your needs with major financial institutions. And you’ll probably not be paying double when it comes to implementing recommended product purchases: both a fee to the planner for oversight and a commission to the product salesperson.
  • Money under management: Some planners manage your investments for you and charge you a percentage of the assets under management as their fee (usually around 1%). Again, exercise caution when choosing a money manager especially if you are giving someone discretionary power over your money. Other then the fee structure they are similar to a fee based advisor in supporting your needs.

One question one may ask; is my financial advisor overcharging me? If you’re paying more than 1% of assets, he probably is. It’s much cheaper to do the easy stuff yourself, and then pay a financial professional by the hour to advise you on the more complicated items. An honest and knowledgeable financial advisor who won’t try to “pad” his hourly charges might be worth as much as $300 an hour.