By Jean C. Setzfand
The start of a new year is a great time to get your finances in order. You may want to review your 401(k) statement to see if you’re on track with your investments and contributions, think through ways to spend down credit card debt or even figure out how to finance a short term goal, like buying a car.
A lot of people go the “do it yourself” route when it comes to financial planning. There is no right or wrong way, so decide what works best for you and go for it. If you choose to manage your finances on your own, AARP has helpful online information, tips and resources for you. Start today at www.aarp.org/money.
I like managing my finances myself. But my sister is the total opposite. She doesn’t have any interest or time to do it on her own, so she’s handed over the reins to a professional to help her make financial and investment decisions. If this is more up your alley, read on for some tips on how to find the right kind of financial professional to meet your needs.
Types of Financial Professionals
You’ll come across dozens of designations for financial planning professionals. I’ll go through the more common types, but be aware that some designations are no more than a series of words that sound good together. For example, some people in the field of finance put themselves out there as specialists for seniors. Many don’t have any formal training or certification as senior specialists, so you can’t rely on the title. To look up a designation and find out its meaning, check the Professional Designations Tool at www.finra.org/investors. (FINRA is the securities industry self-regulating body.)
Here are the basics about some of the “standard” financial professionals you’ll come across:
Investment advisers generally provide investment advice to their clients and manage their investments. The Securities and Exchange Commission (SEC) typically regulates investment advisers, as do state securities regulators.
Brokers traditionally buy and sell securities, such as stocks, bonds, mutual funds and the like for their clients. The SEC and states regulate brokers, and they must be members of FINRA.
Insurance agents can help you with your insurance needs, such as life, property and long-term care insurance. “Captive” insurance agents sell the products of only one company, while independent agents can offer products from many companies. State insurance commissions regulate insurance agents.
Certified Public Accountants (CPAs) can offer a variety of accounting services such as tax preparation and financial planning. CPAs are licensed by the state after meeting education and experience requirements.
Financial planners generally take a broad view of your financial affairs. The most comprehensive financial planners assess every aspect of your financial life, including managing your investments. The financial planning profession doesn’t have its own regulator, but planners may be regulated based on the services they offer. For example, the SEC would regulate a financial planner who is also an investment adviser.
Certified Financial Planners® (CFPs) earn this special designation by meeting educational requirements and passing a comprehensive certification exam. These professionals are held to a code of ethics that, among other things, puts their clients’ interests above their own. As with financial planners, CFPs take a broad view of your financial situation, and are regulated based on the services they offer
How They Get Paid
Financial professionals receive compensation in a variety of ways. Before you hire anyone, make sure you understand how that person gets paid. A financial professional may:
- Charge a percentage of the value of the assets they manage for you (for example, 1%)
- Charge an hourly fee for the time they spend working for you
- Earn a commission (a fee for selling a certain product)
- Draw a salary
- Some combination of these
Each method has potential benefits and possible drawbacks, depending on your needs. For example, someone who makes money solely on commissions for selling products may not have your best interests in mind.
Finding a Financial Professional
My sister told me she found her financial planner by talking with her friends. Family and friends are a good place to start, but be sure to ask what they like about their financial professional, and decide whether you’re looking for someone who offers those attributes or capabilities.
Gather two or three names of financial professionals and set up appointments to talk with each of them. Ask for an in-person meeting. If any of them tries to get you to just talk by phone, cross them off your list. You want to talk with only someone who is eager to work with you.
Think about what you want out of your relationship, and be ready with a list of questions of your own. Here’s a list of 10 questions* to take with you:
- What experience do you have working people who are like me?
- Do you have any special areas of expertise?
- What licenses do you hold? Are you registered with the state, SEC or FINRA? If so, in what capacity?
- What relevant professional designations do you hold?
- How long have you been with your current firm? Where did you work before?
- What investment products and services do you (or don’t you) recommend to your clients? Why?
- How much will I have to pay for your services? What is your usual hourly rate, flat fee or commission?
- Do you or your firm impose any minimum account balances? If so, what are they? And what happens if my holdings fall below the minimum?
- How frequently will we meet to discuss my portfolio and the progress we are making toward my investment goals?
- Who else in your office will handle my account?
*Adapted from www.finra.org/investors
After the interviews, compare the answers you received. Think about each professional’s approach. Did she discuss financial issues using language you could understand? Do you think she understands your situation well enough for you to entrust your personal information and your future? And most importantly, did you feel a connection? You may be working with this person for years to come, so it’s important you’re comfortable with what she has to offer – and how she offers it.
My sister and I are a lot alike and we definitely have different ways of handling our financial lives. She’s been working with her investment adviser for more than a decade and just loves her. Whether you decide to manage your finances personally or hire a professional, make sure you’re happy with the decision. And speaking of happy, have a Happy New Year!
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Jean C. Setzfand is Vice President of the Financial Security issues team in the Education and Outreach group at AARP. She leads AARP’s educational and outreach efforts aimed at helping Americans achieve financial ‘peace of mind’ in retirement. She can be reached at firstname.lastname@example.org .