Seven Mistakes in Hiring a Financial Planner

MSN Money lists seven mistakes in hiring a financial planner as follows:

• Big Mistake No. 1: Interviewing just one candidate
• Big Mistake No. 2: No background or reference
• Big Mistake No. 3: Focusing the search on cost or payment style
• Big Mistake No. 4: Expecting credentials to make an adviser 'good'
• Big Mistake No. 5: Viewing results based entirely on returns
• Big Mistake No. 6: Letting the adviser control everything
• Big Mistake No. 7: Hiring friends and relatives

As most of you know, I don't have a financial planner -- I prefer to manage my money myself. But here's what I would do IF I was to look for one:

• I would ask several successful friends to recommend financial planners they have had that they can recommend.

• I'd call/meet with several of them, asking a wide variety of questions to try and determine both competence as well as compatibility. I'd also try to determine if the planner was personally financially successful. I know others disagree, but I like people who know what to do AND have done it/are doing it. If he can't be successful applying his own principles, why do I need help from him?

• As I eliminated some, I'd ask the others for references and I would call them. Let's fact it, they all will give a great review. I like to ask, "I know Matt's a great guy, but everyone has shortcomings. What are one or two things you'd change about him as a planner if you could?" I've gotten some great insights checking references using that question.

• I would pay attention to overall costs, though I'd look more for "value" (if I found what I thought was a better planner who was priced slightly more than another one, I'd go with the higher-priced one.)

• I would NOT be snowed by fancy credentials or degrees. I'm looking more for results.

• I certainly would NOT let my advisor control everything nor would I hire friends or relatives. Both these moves are recipes for disaster IMO.

I've said a lot about financial planners in the past several years (not so much in the past year or two since there hasn't been much new to add.) If you'd like some detail on my thoughts in this area, check out my comments at the end of the post titled The Myth of Financial Expertise: Why Professional Wine Tasters and Stock Pickers are Clueless -- and How You Can Beat Them.

Comments

[billbill]

I would add 1- Make sure the adviser can separate Insurance from Financial Goals. Insurance agents disguised as financial planners seem to be plentiful out there. I know insurance plays a part but Whole Life Insurance or Variable Annuities etc. are not the be all of my financial future.

I agree with Mistake #7 since my wife's father is a Financial Planner. We do not agree on a number of things (see above) and it sure makes things difficult to talk about.

[DIY Investor]

I assume you are talking about financial planner as distinct from investment manager. These are two different roles (sometimes wrapped up as one) that should, in my opinion be looked at a bit differently. If you have a complex life then you need a planner who is well versed in all the nuances of planning. For example, if you have been granted different types of options as an executive and are looking for a tax efficient way to diversify your asset holdings by getting out of your options you need someone who has the expertise to do this analysis for you. Not always easy!
On the other hand, if you are looking for someone to manage your assets there are different criteria. To me, one you didn't explicitly mention but sort of implied, is to make sure you understand the investment process. If they start throwing around a lot of buzz words and complicated jargon grab your wallet and run.
Use an RIA and not a broker. If you don't know the difference find out what it is. It relates to the above comment on watching out for insurance people. Get insurance from them - not investment advice or financial planning advice.