Financial Planning

Consumers look to financial planners to provide objective, knowledgeable advice about managing money, including developing a budget and investment strategy tailored to individual economic limits and needs. Financial planners have varied backgrounds and can hold a variety of credentials, licenses, and degrees attesting to their education and expertise. Examples include:

  • CFP-Certified Financial Planner. The International Board of Standards and Practices for Certified Financial Planners, Inc. accredits qualified colleges and universities to teach and test students to qualify for CFP certification. The CFP course consists of six sections covering subjects such as introduction to financial planning, risk management, investments, tax planning, retirement planning, and estate planning. Candidates take a single comprehensive examination after completion of all courses. In addition to the examination, candidates for certification must meet certain experience requirements in related work.
  • ChFC-Chartered Financial Consultant. Graduates complete a correspondence program with eight required courses and two electives, and must have three years of qualifying business experience and meet ethical standards.
  • MSFS-Masters of Science in Financial Services. To earn this degree, planners must complete thirteen graduate level courses and a research paper.
  • Registry of Financial Planning Practitioners. Sponsored by the International Association for Financial Planning, registry members must have three years full-time practice as a planner, and have either a CFP, ChFC, CPA, law or business degree.

Existing federal law (the Investment Advisors Act of 1940), defines financial planners as anyone who offers to furnish advice on the purchase and sale of securities for compensation. By law, financial planners must register with the Securities and Exchange Commission (SEC). However, not all of those calling themselves financial planners have the necessary qualifications. To protect your investments, consider the following advice when choosing a planner:

  • Survey your friends, relatives and colleagues who have had satisfactory dealings with their own financial planner over a period of several years.
  • Ask for recommendations from your contacts in the financial community, including your broker, banker or accountant.
  • Contact the Better Business Bureau to check a financial planner's report.
  • Check with the SEC to ensure the planner registered accordingly under federal law.
  • Check to find out if the National Association of Securities Dealers, Inc. (NASD) has taken any disciplinary actions against planners you're considering.

Once you have selected prospective planners, schedule preliminary interviews. Ask questions, including:

  • What educational degrees do they hold, and what is their professional background, including employment history?
  • What are their investment philosophies and areas of specialization?
  • Do they provide names of recent clients and examples of plans and monitoring reports?
  • Do they keep current on financial matters through continuing education and training?
  • How do they plan to be compensated (e.g., fees, commissions, or a combination of the two)? Get a written estimate of the cost for services.

Fee Categories for Financial Planners:

Fee-Only: These planners charge either an annual fee based on assets and investment activity, or an hourly fee of $50 to $200 or more. They offer a financial plan and then refer clients to others who sell financial products such as stocks or mutual funds, or clients may choose to make investments themselves through e-trading and other personal investment options. The advantage of having this planner is that all they do is give advice and therefore, there are no conflicts of interest related to commissions earned on the sale of particular investment products.

Fee/Commission: Some planners charge both a fee for advice and commission for the sale of products. These planners will assist in helping to create clients' financial plans as well as make investments on the clients' behalf.

Remember, a good financial planner should help you get a clear picture of your financial situation and lay the foundation for future investment decisions. Beware of planners who offer few or no alternatives in your investment plan, which may indicate the planner's intent to steer you into a fraudulent scheme or sell a specific product for the commission. Similarly, avoid planners who use high-pressure sales tactics or promise unusually high rates of return on investments.

Before making investment choices, get your planner's advice in writing, and make sure you understand the risks involved in what you are purchasing. And once you have chosen a planner, be sure to review all statements each month for accuracy.

For more information contact:

Better Business Bureau
www.bbb.org

New York State Attorney General
(800) 771-7755
www.oag.state.ny.us

Certified Financial Planners Board of Standards
(888) 237-6275
www.cfp.net

National Association of Securities Dealers, Inc. (NASD)
(800) 289-9999
www.nasd.com

Securities and Exchange Commission HQ
Office of Investor Education and Assistance
(800) 732-0330
www.sec.gov

This report is general in nature and not intended as a reliability report on any company, service or product.