Certified Financial Planners are licensed by the Certified Financial Planning Board of Standards and members of the Financial Planning Association. They work with a code of ethics, pay an annual licensing fee and have to pass a ten hour examination and have 3 years experience as an assistant to a Certified Financial Planner or as a planner themselves. They are required to renew their license every two years and take continuing education courses.
You should always check to see if a planner is licensed before you contact them. The Certified Financial Planning Board of Standards is similar to the Federal Bar Association; they will let you know if a license has been suspended, revoked or if it has lapsed.
It’s important to choose a CFP who is a fiduciary. The word fiduciary refers to a professional that advises you of financial products that are in your best interest whether they benefit him or her. Certified financial planners who sell insurance, mutual funds or securities probably are not fiduciaries. They adhere to a “suitability” standard; that means that they are supposed to “reasonably” believe the products they recommend that you buy are beneficial to you. The best way to be sure you have a fiduciary is to choose an attorney, a Certified Public Accountant or a registered investment advisor (RIA). You will often find that these three professionals are also certified financial planners.
Another thing to consider is the fee structure. These vary with different planners, depending on their experience and the area in which they operate. A certified financial planner with twenty years of experience will naturally charge more than one who has just started in the business. Some charge a flat fee or a retainer; others charge a percentage of your assets or income. You can also find those who charge by the hour or by the project. If you only want one or two visits to be sure you’re on the right track you will probably benefit from an hourly fee.
Once you’ve checked out a certified financial planner’s qualifications and legitimacy, it’s important that you interview him or her. This is when you find out if they are a good fit for your needs. If they try to sell you stocks or funds right off the bat, they are probably not interested in your financial health. On the other hand, if they discuss your financial goals, overall finances, managing taxes and other strategies they are good candidates for hire. Try to avoid certified financial planners who work on commission; such people depend on sales volume and don’t often make recommendations that are in your best interest.
Some certified financial planners specialize in specific areas while others work on your general financial health. Some are cautious, others are aggressive and some will work only with clients that have a certain net worth or more.
You may not need to retain a certified financial planner permanently but it’s a good idea to have a financial checkup every couple of years to make sure you’re on the right track. Whoever you choose, ask for a written agreement that details the fees charged and services provided and keep it for your records.