SACRAMENTO, Calif. -- Choosing a financial planner is likechoosing a good doctor. We want someone who's highly trained,professionally licensed, completely ethical and has your (financial)best interests at heart.
And coming out of the recession, many people are hungry forfinancial help. They're trying to figure out how to save forcollege, medical expenses, retirement and other major life events.
The number of Americans with no personal or retirement savingshas ratcheted up from a year ago, according to a recent HarrisInteractive poll. It found that 34 percent of adults had noretirement money stashed away and 27 percent had no personalsavings, as of November 2010. That's up 4 percent and 5 percent,respectively, from the previous year.
"With the economic downturn, people are a little bit gun-shyabout what to do with their money and are looking for advice," saidEllen Turf, CEO of the National Association of Personal FinancialAdvisors in Arlington Heights, Ill. "Everyone's afraid and wants toknow: Where do I invest; where do I (earn) more interest; how do Ifund my retirement?"
Finding someone trustworthy to help you answer those questionstakes a little bit of homework, but it's not difficult. Whenconsidering any type of financial professional, there are threeessentials: credentials, credibility and compensation.
Check the credentials
It's relatively quick and easy to check the licensing, employmenthistory and disciplinary records of most financial professions. Thewebsites of regulatory bodies like FINRA and the U.S. Securities andExchange Commission, for instance, have consumer tools to look upindividuals or firms who offer investment advice.
"You have to do your research because there's a lot of fraud outthere," said Mark Leyes, spokesman for the California Department ofCorporations, which oversees financial planners, investment advisersand brokers.
Checking the credentials of a financial professional "doesn'tguarantee that they're reputable but it shows if they're licensedand in good standing," Leyes said.
Don't be dazzled by impressive-sounding titles cluttering abusiness card. There are dozens of acronyms out there, everythingfrom "Asset Protection Planner " to "Certified Senior Consultant,"that may not necessarily mean anything.
According to FINRA, there are more than 100 financialdesignations commonly used.
Some respected titles, like CPA (certified public accountant) orCFP (certified financial planner), for instance, require courseworkand professional exams, regular continuing education and adherenceto professional standards.
But dozens of alphabetical designations may be nothing more thantitles purchased off the Internet.
In recent years, several federal regulatory agencies have issuedwarnings that many titles using "retirement" or "senior" are flimsyattempts to target seniors and elderly investors.
"Most people have no clue what the acronyms stand for. They tryto appear legitimate but many are designed to confuse the investor,"said Jack Waymire, author of "Who's Watching Your Money?" andfounder of the Paladin Registry, which screens financialprofessionals.
If you Google a title and it requires no prerequisites, nodegree, no exam and no continuing education, "it's bogus," he said.
Check credibility
Don't automatically trust your money to someone recommended byfriends or family. As the many personal and business acquaintancesof global Ponzi schemer Bernard Madoff discovered, getting areference is no guarantee that you're not hooked up with a financialfraudster.
"People tend to be overly influenced by personalities, salesskills and false claims," Waymire said. "The investor has to ask theright questions, know good answers from bad ones and get everythingin writing."
It's generally recommended that you meet or talk with severalfinancial advisers before entrusting your financial life to them.
Ask questions
How long have they been in business? What's their background andtraining? Do they work with clients in your income bracket? How arethey compensated?
You also want to ask exactly what services they'll provide. Willthey assess your financial picture and lay out a comprehensive plan?Do they provide a monthly, quarterly or annual review of yourinvestments? Do you want a onetime financial tune-up or a long-termrelationship?
At the minimum, many people need a "financial physical," saidNAPFA's Turf. "Just like a doctor does when you go in for aphysical, you really want them to look at your whole self: yourincome, your savings, your 401(k), your debts ... whether you havekids going to college, when you want to retire. It's a comprehensiveapproach."
What it costs
Generally, it's recommended to go with someone who's "fee only,"which means they don't charge commissions, but are paid directly fortheir services. That could be an hourly rate, a set amount perconsultation or as a percentage of your total assets.
A "fee-based" adviser means he or she can charge commissionsbased on financial products they sell to you. If that's the case,ask for specifics: what are the account fees, management fees, front-end fees on investment purchases, etc.
Above all, don't rush, said John Gannon, FINRA's senior vicepresident for investor education. Think about your financialobjectives, whether it's taxes, investments or retirement planning."Knowing what you need will prevent you from paying for services youdon't want," Gannon advises.
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