How to Find a Good Financial Planner

Here's another great bit of advice from the October issue of Money magazine. It is in response to a reader question on "how to find a reputable financial planner." The article gives a long list of to-dos (sorry, I don't have a link -- but it's on page 45 if you want to read the magazine), but here's the part that I like the best:

Your best bet is to deal with someone who comes recommended. Get suggestions from friends, relatives, and colleagues who seem to manage their money admirably and whose financial situation is similar to yours.

Excellent, excellent, excellent!

This is what I recommend as well and I've followed this advice myself through the years with much success. While I don't work with a planner, this advice has netted me a great CPA to do my taxes, a no-nonsense insurance agent who's great on customer service and pricing (I shopped it out -- he has good prices), and a good lawyer (for getting my will updated). All of these came from people I know/trust and all have worked out extremely well. As such, I whole-heartedly recommend following this advice.

Why is getting a personal recommendation so important? Because there are tons of "financial advisors" out there who do nothing but work to make your money their money (one quote I read that was attributed to a broker said, "My job is to make millionaires...out of multi-millionaires.") Like everything else, it's certainly "buyer beware" when getting financial advice.

For more of my thoughts on this issue, see Is Hiring a Broker Good for Your Finances or Bad? The bottom of that post has a long list of nightmare stories associated with "financial advisors."

Comments

"who seem to manage their money admirably and whose financial situation is similar to yours."

This is important. Just because friends of yours use a financial advisor doesn't make him good. I speak from personal experience having been part of a family that lost quite a lot of money to a financial advisor recommended by several families in our church.

I was a little wet behind the ears at the time. Were I a little more experienced, a few alarm bells would have gone off. For one, this fellow put way too much emphasis on religion, quoting biblical phrases ever so slightly out of context (you'll get that money back, pressed down and overflowing?). It sounded great. The reality was different. In retrospect, limited parternships can be quite a hole. To this day, I don't know if he was intentionally deceiving us, or just incompetent.

I'd say to educate and plan by yourself first, then use the financial advisor as a second opinion. Try to stay objective, but question motives, find independent sources.

[Russell Bailyn]

I find it interesting how many people are concerned about being taken advantage of by financial advisors. I used to believe the reason was that middle-class investors feel they don't have sufficient assets to use an advisor. But, now I've come to think that it's genuinely an issue of trust, specifically whether or not they will be taken for a ride. Sometimes I blame this dark hanging over the financial services profession as a result of the litigious environment we live in. Other times I think that certain "breeds" of financial advisors give the rest of us a bad name. For example, "stockbrokers" and "financial advisors" are often confused. Pushing stocks is a different career from comprehensive financial planning. "Wealth Managers" love to argue this point since they consider their profession much more complex than common financial planning needs such as recommending mutual funds or setting up an IRA. Overall, I think good financial planners are out there (look for the CFP designation) and find the ones who take time to read blogs ;-)

[Russell Bailyn]

I find it interesting how many people are concerned about being taken advantage of by financial advisors. I used to believe the reason was that middle-class investors feel they don't have sufficient assets to use an advisor. But, now I've come to think that it's genuinely an issue of trust, specifically whether or not they will be taken for a ride. Sometimes I blame this dark cloud hanging over the financial services profession as a result of the litigious environment we live in. Other times I think that certain "breeds" of financial advisors give the rest of us a bad name. For example, "stockbrokers" and "financial advisors" are often confused. Pushing stocks is a different career from comprehensive financial planning. "Wealth Managers" love to argue this point since they consider their profession much more complex than common financial planning needs such as recommending mutual funds or setting up an IRA. Overall, I think good financial planners are out there (look for the CFP designation) and find the ones who take time to read blogs ;-)

[FP]

The hardest part of finding good financial planning is to find a person who really knows his "stuff" but has the time to deal with you on a personal level. In other words consider your tax preparer. Once a year you trot into his or her office with a box load of papers, you wade through it for a couple hours and you're done. You probably won't see them again for a year. With a financial planner this is a major no no. An awful lot can change in the course of a year and you want the ability to contact this person and discuss changes in tax laws, stock directions, allocations, real estate, etc. on at least a monthly basis. So, along with finding a skilled person, one needs to find one who won't blow you off when you call. But more importantly, not only shouldn't he blow you off, he has to listen to your concerns and make movements based on your feelings too.