What You Need to Know About Financial Planners

As you seek out a financial professional, you are apt to come across individuals who call themselves financial planners. It's a phrase that encompasses many types of services and skills. Here's what you need to know about financial planners. 

Unlike brokers or investment
advisers, the financial planning
profession does not have its
own regulator. Instead,
individuals who call themselves
financial planners may be
regulated in relation to other
services they provide.

What Are Financial Planners?

Financial planners can come from a variety of backgrounds and offer a variety of services. They could be brokers or investment advisers, insurance agents or practicing accountants—or they may have no financial credentials at all. Some will examine your entire financial picture and help you develop a detailed plan for achieving your financial goals. Others, however, will recommend only the products they sell, which may give you a limited range of choices. 

Who Regulates Them?

Unlike brokers or investment advisers, the financial planning profession does not have its own regulator. Instead, individuals who call themselves financial planners may be regulated in relation to other services they provide. 

For example, an accountant who prepares financial plans would be regulated by the state Board of Accountancy, and a financial planner who is also an investment adviser would be regulated by the Securities and Exchange Commission or by the state where the adviser does business.

If a planner you're considering uses a particular professional credential, be sure to check out that credential using FINRA's Professional Designations lookup tool. Some financial planners might use designations that require little experience, study or continuing education—or which lack processes for verifying the person actually holds the credential or for filing complaints. Other planners might hold a credential that is far more difficult to get and to keep, such as the Certified Financial Planner® designation, or CFP®, issued by the Certified Financial Planner Board of Standards. This designation requires at least three years of experience, imposes fairly rigorous standards to earn and maintain, allows investors to verify the status of anyone claiming to be a CFP and has a disciplinary process. But be aware that a designation alone is not the only criteria by which to base your financial planner selection.

Find Out What They Offer

A key aspect of selecting a financial planner is finding out what he or she offers. This can vary greatly from one financial planner to another.

Some create comprehensive plans that delve into every aspect of your financial life, including savings, investments, insurance, college savings, retirement, taxes and estate planning. Others have a more limited focus, such as insurance or securities. Some financial planners only prepare plans with general investment guidelines, and do not sell or recommend specific investments. Such a planner may be appropriate if you are looking for someone to take a broad look at your current financial picture and help set you on a course to meet various financial goals. 

Other financial planners either sell investments, insurance or other products—or work for a firm that does (in which case you might be asked to meet with a sales person after a plan is developed). If planners or their business associates sell financial products, their recommendations typically will correspond with the products or services they sell. For example, an insurance agent will tell you about insurance products (such as life insurance and annuities) but likely won't discuss other investment choices (such as stocks, bonds or mutual funds). You'll want to make certain you fully understand which areas of your financial life a particular planner can—and cannot—help with before you hire that person.

Ask Key Questions 

Before you hire a financial planner, ask the following questions: 

  • What experience do you have working with people like me? 
  • What professional licenses do you currently hold? Are you registered with FINRA, the SEC or a state securities regulator? If so, for how long and in what capacity? 
  • Do you or your firm have an overarching investment philosophy? What types of services or products do you offer? 
  • Are there any products or services you don't offer? Why?
  • How do you get paid? Do you receive commissions on products I buy or sell? A percentage of the amount of my assets you manage? A flat fee? Any other method? What other fees and expenses do you charge? 
  • Can you provide me with any customer references? 

Do Your Homework

Finally, spend time learning about the basic principles of financial planning, investing and investment products before you engage a financial professional or purchase a securities product.

It's important going into any financial planning discussion to know that all investments carry some degree of risk, and that different investment products carry different types of risk. For instance, bonds carry interest rate risk: if interest rates rise, bond prices are likely to fall. Stocks are subject to market fluctuation, the risk that prices will move up and down, sometimes significantly and quickly. Because risks tend to vary across different types of investments, it is a sound strategy to diversify across a number of investments categories. 

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