Working with a financial planner

From saving for retirement to your kid's education, it helps to have the assistance of a professional financial planner.

What can a financial planner do for me?
You don’t need to be wealthy to work with a financial planner. Whether you’re just starting out on your own, about to become a new parent or soon to be approaching retirement, a good financial planner can:

• Help you define your goals, such as saving for your retirement or your child’s education.
• Explain the investment options available to help you meet those goals.
• Help you to understand the risks of investing and determine the level you’re comfortable with.
• Assist you in choosing and purchasing specific investments, such as mutual funds, stocks and bonds.
• Review and revise your investment strategy as your financial situation changes.

What types of professionals are out there?

Many people call themselves financial planners, investment advisers or consultants, but they’re not all created equal. It’s important to remember that stockbrokers, insurance agents and mutual fund representatives are not the same as financial planners. In general, their job is to sell you investments and other products, not to give you big-picture advice. For example, brokers recommend and help you purchase stocks, but they may not be qualified to help you plan for your retirement.

It’s a good idea to look for a financial planner with a professional designation, since this offers some assurance that the person has achieved a certain level of education and experience:

• Certified Financial Planners (CFPs) must have experience with many aspects of personal finance, including investment, tax, retirement and estate planning, and must pass a comprehensive exam prepared by the CFP Board of Standards.
• Chartered Financial Consultants (ChFCs) are certified by the American College, a non-profit financial education center. They can provide a wide variety of personal financial advice, including retirement planning, insurance, tax strategies and choice of investments.
• Certified Public Accountants (CPAs) have a college degree, have passed a professional examination, and are licensed by the state. While many CPAs specialize in taxes and accounting for businesses, others focus on personal financial planning. Look for one with the additional designation “PFS” (Personal Financial Specialist).

Unless you have highly unusual circumstances that require a specialist, any of the above professionals can help you with your day-to-day financial planning. There are many other designations, and some are far more difficult to obtain than others, so don’t be impressed just because someone has a few letters after their name. If you encounter one you’re not familiar with, you can look it up on the National Association of Securities Dealers (NASD) home page.

Whatever type of planner you choose, pick someone you’re comfortable working with. You’ll need to find a person you trust to act in your best interest, not his or her own. You’ll also want to work with someone who understands and respects your risk tolerance and approach to investing.

How does a financial planner get paid?

Understanding how your financial planner is compensated is important since it may have an influence on the advice they’re offering. Financial planners may be paid in several ways:

• Fees. Some planners charge a flat hourly fee. Others may charge a monthly, quarterly or annual fee based on a percentage of the amount of money they are managing for you.
• Commissions. If you buy a mutual fund, stock or other investment through a financial planner, they may receive a percentage of the sale amount.
• Salary. Planners may also be paid a regular salary from the company they work for, regardless of the number of investments they sell. (Their company makes money through fees and commissions.)

Don’t be shy about asking a planner how he or she is paid, and be sure to check whether there is a fee attached to any investment they recommend.