Choosing a Financial Planner

Preparing a tax return can be an educational experience. As you gather your papers and look at the numbers, you get a look at the big picture through the peephole of your tax form: totals-income, taxes, investment earnings. You may pause to marvel at how some of your big expenses add up. You learn about where you, and anyone on a joint return with you, stand financially as of the end of last year. And you may also learn that you have a lot of questions about where you'll be at the end of this year, or in five years, or at some other key time in the future.

How do you know when you're ready for - or when you really need - a personal financial planner?

"How comfortable are you with the management of your own financial future?" asks Ted A. Carnevale, CPA, chief executive officer of Gramkow, Carnevale, Seifert & Co., LLC in Oradell, NJ. "Some people are comfortable with the planning, creating a strategy and managing for the future. Anyone who is not, who is concerned about the future, is a candidate for a personal financial planner."

"Are you planning on working for the rest of your life?" asks Bernard M. Kiely, CPA, of Kiely Capital Management, Inc. in Morristown, NJ. "Are you planning on getting married? Do you have children who will be going to college? Are you planning to retire? If so, you should see a financial planner."

Andrew Blackman, CPA, of Shapiro & Lobel LLP in New York City, poses the inevitable "next question" a person must address when considering the need for a personal financial planner: "Can you afford it?"

"It's not inexpensive," Blackman says. "But it's like making the decision to go and see a physician. Are you worried about your financial health? Do you have more than a small sum of money to invest and questions about where to put it? Are you having trouble with credit? These are symptoms. You need to see the doctor."

Fee-Based Service or Commission?

Deciding how you want to pay for personal financial planning services is one of the first decisions to make when choosing a personal financial planner. In general, you will need to choose between paying a fee to the planner or allowing the planner to earn his or her income on commissions. Fee-only planning, which simply means paying the planner for his or her time and services rendered, is an approach that has gained great professional acceptance over the past two decades. Professionals who recommend fee-only planning say this approach allows the planner to be truly independent and free to make the best possible recommendations.

When considering a fee planning arrangement, be sure to check whether you will be charged an hourly rate, a flat rate or a percentage of your assets and/or income. Commission-based planning services are generally provided by professionals from the insurance or brokerage industries. They earn their income when their clients implement elements of their plan: purchase an insurance policy for example, or invest in a loaded mutual fund. Commission-based planners don't get paid for their work unless their clients follow through with their recommendations. Fee-only planners are paid even if their clients do not follow their advice.

The fee vs. commission question has been complicated further in recent years, as some fee-based planners have begun offering insurance and investment products on which they earn commissions. When meeting a prospective investment advisor, you should ask the prospective planner to provide you with a description of any conflicts of interest in writing. For example, financial planners who sell insurance policies, securities or mutual funds have a business relationship with the companies that provide these financial products. The planner may also have other relationships or partnerships that should be disclosed to you, such as business she receives for referring you to an insurance agent, accountant or attorney for implementation of planning suggestions.

All financial planners who have registered as investment advisers with the Securities and Exchange Commission or state securities agencies, or who are associated with a company that is registered as an investment adviser, must be able to provide you with a disclosure form called Form ADV or the state equivalent of that form. Form ADV is a financial disclosure document that is designed to inform consumers what, if any, financial benefit the planner will gain if they make investments for you.

How Do You Choose a Personal Financial Planner?

The most important criterion for choosing a personal financial planner is trust. Are you confident that the person is truly an expert? Are you getting good advice? Is the planner working with only your best interest in mind? How do you find that person?

"Talk to people who have successful relationships with financial planners," says Carnevale. "Meet with the people or firms that are recommended to see if they seem compatible. Can you establish a rapport with the planner you are dealing with? You have to be sure you feel real trust."

"Check their personal financial planning credentials," says Blackman. "You want to be sure your candidates are bona fide experts." He recommends that, in addition to being a CPA, a financial planner should be recognized as a Personal Financial Specialist (PFS) or a Certified Financial Planner (CFP).

"Determine if the person is principally a financial planner or not," suggests Kiely. He suggests that you ask to see a sample financial plan and have the planner go over it, to give you a clear idea of what you'll be getting for your planning investment. As the current chair of the Personal Financial Planning Committee of the New Jersey Society of CPAs, Kiely also suggests you consider whether the person is active in the profession, involved with current issues and up-to-date on new developments in the field.

"You have to be engaged in the process," Carnevale says. "You can't leave it all up to the planner and blindly follow along. You've got to stay involved by monitoring the process as you go along. Make sure you follow through on the action items in your plan and compare your plan's projected goals with the actual results. Make sure the plan is working."

The Planning Process

While every professional planner's approach will vary in some respects, personal financial planning is generally a two-step process. "First, we look at where you are now: your assets and liabilities," Carnevale says. "We consider risk management, addressing issues like insurance and some elements of estate planning. We get it all in front of you.

"Then we identify your future objectives," Carnevale continues. "Near, medium and long-term. We'll consider income, education costs, savings and retirement plans. Then we identify objectives and set up a program to accomplish your goals - goals which will be different for each individual." A full personal financial plan requires a significant investment in time and money.

"It doesn't matter how rich or poor you are," Kiely says. "The amount of work required is the same." Kiely does suggest a less expensive way to start that may be appropriate for people who are considering retaining a personal financial planner for the first time.

"I call it the 'yellow pad approach,'" Kiely says. "Make a two-hour appointment with a financial planner. Then start carrying a yellow legal pad with you and start writing down questions. Keep the pad with you at all times, in your car, on your nightstand. Questions will pop into your mind at any time. Then go to your meeting and squeeze all the advice you can out of your meeting."