How to Find a Good, Young Financial Planner

Here are some suggestions from a reader in the financial industry on how to find a good, young financial planner. He submitted them in response to my comments on financial planners where I said, “a younger planner simply wouldn't have had the time to get the experience I felt was needed to advise me.” His thoughts:

Here is how I would advise finding good young financial planners:

1. Works at a reputable fee-only – meaning he does not take commissions etc, and got a good job.  Does not count if a relative is a partner at the firm.

2. Has a CFA or CFP (takes some effort and smarts to complete these by a young age)

3. Has direct investment experience (i.e. worked at an investment manager before becoming a planner/advisor)

4. Ask test questions – When you ask things that the planner could not possibly know the correct answer to, make sure he tells you that he doesn’t know the answer and either needs more info from you or needs to seek expert advise.  For example, ask a complex tax or legal question, or ask him whether a particular investment is “right for you” without giving him enough detail about your finances for him to truly know the answer.

5. More test questions – Ask him what his portfolio is invested in, and why.  His reasons are more important than his allocations.  For example, good answers would include “I’m about 50% cash because I am about to make a downpayment on a house, and the other 50% is spread across 15 individual stocks in my IRA” or “I’m 100% invested in the vanguard total stock market index fund, because it’s the only equity index fund in my 401k, and I get a great company match and should be 100% equity due to my high risk tolerance and young age.”

Ok, but why not find an older planner who could fit the bill AND have a proven track record and good experience? Of course the question for me is, why use a planner at all? ;-)

Comments

[Colin]

Another bonus to using a younger financial planner is that he/her fees are probably significantly lower than a more experienced planner. But you also get what you pay for in a lot of circumstances...

Personally, I wouldn't go to a young financial planner for anything life altering, but I'm sure they could be very helpful in small scale investment planning, debt management and most simple tax situations.

[cmadler]

I'm relatively young myself (30). I hate finding a great service provider, whether its a doctor or a plumber, and then they retire. I don't want to change advisors every ten years as they retire; even if they refer you to a new advisor, there are risks. I have a chronic medical condition, for which I was seeing a great doctor. He retired and referred me to another doctor in the same office. I had one appointment with the second doctor, and then he moved away, without referring me on to anyone (and I don't know how much value I would have given to such a referral). After that, I neglected treating my condition for several years, until I got around to finding a new doctor.

My condition is such that I can get away with going without treatment for a while, and my finances are such that I could get away with no financial advisor for a while, right now. But I can imagine a time in the not too distant future where doing that could cause real problems in my finances. Working with a relatively young, but still established financial advisor is one way I deal with that.

[David]

All old planners were once young. How do they get the experience?

[FMF]

David --

Someone uses them. It's just not going to be me.

FYI, I wouldn't hire a newly minted doctor, lawyer, plumber, etc. either.

[whatever you choose to call me sir]

Noobs to the working world can sometimes be hard to figure out. I certainly can understand taking advantage of experience when given the opportunity. There is a trade off for everything though. Many times the experienced Dr is the one whose practice is no longer open to new patients. It's not uncommon to call the Dr for a case of the flu and he/she can't see you until a week from this coming Tuesday, would you like to see the PA or ARNP? Umm....that doesn't work. All things being equal, sure take experience. Rarely however are all things equal.

[whatever you choose to call me sir]

Noobs to the working world can sometimes be hard to figure out. I certainly can understand taking advantage of experience when given the opportunity. There is a trade off for everything though. Many times the experienced Dr is the one whose practice is no longer open to new patients. It's not uncommon to call the Dr for a case of the flu and he/she can't see you until a week from this coming Tuesday, would you like to see the PA or ARNP? Umm....that doesn't work. All things being equal, sure take experience. Rarely however are all things equal.

[whatever you choose to call me sir]

Noobs to the working world can sometimes be hard to figure out. I certainly can understand taking advantage of experience when given the opportunity. There is a trade off for everything though. Many times the experienced Dr is the one whose practice is no longer open to new patients. It's not uncommon to call the Dr for a case of the flu and he/she can't see you until a week from this coming Tuesday, would you like to see the PA or ARNP? Umm....that doesn't work. All things being equal, sure take experience. Rarely however are all things equal.

[Giff]

FMF-

Your attitude (which I believe is probably shared by a lot of people) is a major part of the conundrum in which young financial planners find themselves. It's almost a chicken and the egg sort of thing. How do you become a good experienced planner? You need clients and referrals. How do you get clients and referrals? You need experience. See the problem?

The answer (for most) is to work for somebody else to gain experience. Because of people's knee jerk reactions to turning over money to people 20 years their junior, it is very very hard to go out on your own at age 25 and make it (ESPECIALLY, if you're fee-only and not selling products with commissions). Well then, who do you work for? In most cases, you're almost forced to go work for "them" (aka Smith Barney, Edward Jones, etc.) and sell crappy products to make a living. Then after you get enough gray hair to be trusted, you can jump ship and go out on your own. There just aren't many quality fee-only financial planning firms out there, especially ones looking to hire entry level positions. The only other route that seems to work well is to be a career switcher later on in life.

The sad truth is that quality, honest, fee-only financial planning is not the most lucrative way of doing it. So many young planners get sucked into selling products early on in their careers so they can pay the bills, they get used to the commissions, and then they find ways to justify it to themselves.

My question to you FMF- If you were 23 yrs old, fresh out of college with a degree in finance and a CFP certification, and had aspirations of doing financial planning the honest way, what would you do? Wouldn't you feel a little miffed by people who wrote you off immediately just because you were young?

[FMF]

Giff --

It's that way in every area of life and every industry -- the young need to get experience. I did it in the business world, others do it in the retail world, others do it at schools, others at hospitals. It's a fact of life. Saying it's "not fair" won't change it.

And as far as your question, I wouldn't be a financial planner. Furthermore, doesn't a CFP require so many years of work experience?

[Giff]

FMF-

1. Yes, to be an official CFP you have to have 3 years of work experience. I meant to imply that the 23 year old had passed the CFP exam, and looking for a place to gain the experience requirement.

2. "I wouldn't be a financial planner" dodges the question. Please give a legitimate answer. However, my real life response to my own question was exactly what you replied. I went into engineering (my degree is actually in ChE not Finance). I make an excellent salary, but I don't love what I do. I want to do financial planning someday and I would gladly take a 50% pay cut to do what I love. But coming out of college I saw that it was nearly impossible to do it in a way that suits my ethics (which closely match yours, btw, I am frim Bible believing Christian like you) but provide for my family at the same time.

3. I never said anything wasn't fair. What I said was that gaining experience in financial planning (or a similar profession in which experience is paramount to gain the trust of clients) is a completely different ballgame than engineering, business, retail, etc. where there are a plethora of (honest) entry level jobs. You're comparing apples and oranges. Do you not agree? Am I not making sense?

[MonkeyMonk]

I agree with FMF in that I almost always go with experience rather than youthful ambition.

If I was going to go with a <30 financial planner he'd have to really offer me something above and beyond the norm (either in greatly reduced fees or expanded services) to give him a try.

When I was selling my condo in Chicago a few years ago I interviewed four realtors -- three experienced realtors and one an enthusiastic guy right out of college. I talked with him last and he had this insanely expensive looking presentation ready for us but he was suggesting an asking price of 100K more than the others (this made me think he didn't know the market or way trying to woo us with unrealistic numbers) plus he wanted a full 6% commission (the others were all either 5% or 4.5%). I told him right at the end of the meeting that there wasn't a chance I was going to use him. I ended up going with the most experienced, "hot shot" realtor of the group and he proved his worth (which ironically was only 4.5%) by selling our place for asking price within two weeks.

[Livingalmostlarge]

Experience over youth. I too hired an experienced realtor in the buying and selling of our condo and our second purchase. We had a young realtor and it wasn't working for us and were were young to boot!

Much to enthusiastic and inexperienced.

[Colin]

Being a young CPA (24) and wanting to move into more personal financial planning here is what I'm gathering from the comments:

1) Don't be enthusiastic
2) Cut my fees
3) Use some gray "Just for Men" hair coloring

Check. Check. Check.

["Mo" Money]

I at one time had a new financial planner. He was just out of school and he found me by cold calling. My circumstances were such that I wanted someone to talk too. It turned out that I knew more than he did and that was not a good situation.

[FMF]

Giff --

1. Ok.

2. It doesn't dodge the question -- it answers it honestly.

I've talked about how to select, grow, and manage your career over and over. Financial planner doesn't fit the formula for me, so I wouldn't do it. I would do what you did.

Now if you're asking what I'd recommend someone in that situation would do (perhaps semantics, but I answered the question the way you literally wrote it), here's what I would do:

1. Find a job working for a planner who conducts business they way you want to conduct it yourself. You'll probably spend lots of years doing small portions of plans and some tasks you don't like, but this is how you (and everyone else learning a skill) establishes experience.

2. Do all the writing, speaking, teaching, free workshops, etc. you can do to establish yourself as an authority on the topic and to build experience. (BTW, some of these can be sources of extra income.)

3. Set your fees at attractive rates to encourage people to work with you.

4. Progressively learn, work on harder projects, etc. until you get to the point where you can be on your own.

That's how you earn your experience and, as I said, it's something we've all had to do.

One other idea: find people who've done what you want to do, take them to lunch, and ask them to tell you how they did it. I'm sure they'll have some great ideas.

3. I agree that there are a lot of dishonest "financial planners" out there, but there are enough that you can learn from that you can do what I've suggested above if you want to. Somehow some people are doing it, so it's certainly not impossible. It may be difficult, but that leads us back to the original question -- do you really want to enter a field that's hard to succeed in?