Seeking a successful financial advisor is similar to finding a good family practitioner in terms of time and study. Hawley Advisors is an excellent resource for this. After all, you’re searching for someone to whom you should entrust your financial well-being. But where do you begin your search? There are 69 different financial certificates that you can encounter, according to the National Association of Securities Dealers (NASD). Before you pick up the phone and start contacting potential planners, this article may try to help you narrow down the scope.
Referrals from friends and relatives, as from a family practitioner, are the perfect way to start the quest. Also, inquire who they work with. The best planners can inform you that referrals account for the bulk of their new company. You may even search for planners in your region on the internet. There are a few resources that will help you get started. Fee-only, fee-based, and commission-based planners are also mentioned on the Financial Planning Association (FPA) website. Only those planners who follow a strict fee-only incentive model are mentioned on the website of the National Association of Personal Financial Advisors (NAPFA). Below, we’ll go through each of the three compensation models in details
There are four factors to weigh when determining the form of planner is right for you and your family’s finances: qualifications, expertise, compensation, and compliance with regulatory requirements.
The four most popular qualifications in the financial community are CFP, CPA-PFS, ChFC, and CFA.
- The Certified Financial Planner Board of Standards, or CFP Board, awards the CFP designation to persons who fulfil the CFP Board’s qualifications, review, experience, and ethical criteria. A CFP specialist should be well-versed in all areas of financial preparation, such as finances, asset planning, health planning, pensions, and taxation. The classification denotes that the person has undergone stringent tests and followed some criteria.
- CPA-PFS (Certified Public Accountant – Personal Financial Specialist) – CPAs have a more detailed expertise in tax matters due to their profession. The American Institute of Certified Public Accountants awards a PFS certification to CPAs who have completed further training or still hold a CFP or ChFC designation.
- Chartered Financial Consultant (ChFC) – This designation is earned at The American College in Bryn Mawr, Pennsylvania, and designees usually serve in the insurance sector. A ChFC specialist should provide a comprehensive understanding of all areas of financial preparation, including finances, estate planning, pensions, and taxation. The classification denotes that the person has undergone stringent tests and followed some criteria.
- The CFA Institute awards the title of Chartered Financial Analyst (CFA) to experienced financial analysts who complete three exams in economics, financial planning, fund management, securities research, and ethics. Mutual fund managers, retail wealth investment agencies, and hedge funds are most likely to employ CFAs. CFA charter members would reaffirm their adherence to strong ethical principles every year.
With the upcoming onslaught of baby boomers approaching and joining retirement, financial preparation has become a second career choice for many planners today. This is something to hold in mind when interviewing prospective planners. Ideally, the planner has been in the field for more than five to ten years and has a formal qualification in the field. Over the last decade, the number of colleges that provide degrees in Personal Financial Planning and Counseling has exploded. Texas Tech, just up the road in Lubbock, TX, has one of the most well-known systems today.
Understanding how a planner is compensated – and how well he or she is compensated – is crucial to defining the partnership. When it comes to a tax schedule, do ask whether a planner’s incentive conditions will conflict with their objectivity.
A planner’s pay can fall into one of three categories: commission-based, fee-based, or fee-only.
- Commission-based – Fees on the selling of assets such as securities, shares, investment funds, and insurers are paid to planners in this segment. Any bank or investment firm-affiliated commission-based advisors may have revenue targets to meet in order to hold their positions, and the items they choose may not be the right choice for you. Whether you pay a fee to a planner, that doesn’t imply they’re not watching out for your best interests. However, the risk of a conflict of interest is higher.
- Fee-Based – Fee-based planners are compensated by a fixed charge or a share of money under administration, as well as discounts from purchases on items like securities, shares, investment funds, and insurance.
- Fee-Only – Fee-Only planners do not market commission-based products and either charge a flat fee or a percentage of funds under administration. It is suggested that eliminating the motive for a planner to purchase or sell a specific investment for a customer eliminates any conflict of interest, and the planner’s decisions are focused on what is better for the client, not the planner.