Working with a professional may give you confidence, security and a retirement pay-off1
Roughly 9 in 10 U.S. households do some sort of financial planning — ranging from a general spending budget to saving for retirement, according to a 2013 report from the Consumer Federation of America (CFA).
Although some Americans opt to personally map out their financial future, approximately 19 percent have met with a certified financial planner or registered investment consultant, according to the CFA.
If you’re considering asking for outside savings and investment help — but aren’t sure exactly what a financial advisor does (or is) — we’ve got answers to some of your most pressing questions about financial planning professionals:
- What is a financial planner? Many financial planners are investment advisors — meaning they give clients advice about securities like stocks, bonds and mutual funds; some also manage security portfolios, according to the Securities and Exchange Commission (SEC). However, not all investment advisors will help you create a comprehensive strategy for what you invest in and save for retirement. The SEC defines a financial planner as an individual or company that helps you design a plan — encompassing your investments, saving practices, insurance, taxes and other elements — to meet financial goals, such as socking away enough cash for your golden years.
- How do I know if I need one? If you’re extremely investment savvy, you may not. However, as The Wall Street Journal notes, truly understanding how to maximize your money can take a significant amount of time and effort; a financial planner can help reduce your research time and keep your savings and investment strategy on track. Not sure if you’d benefit from some help? Kiplinger’s Do You Need a Financial Planner? quiz may help you decide.
- What do financial planners charge? There are three generally used compensation models, according to the National Association of Personal Financial Advisors (NAPFA), including:
- Commission-based, in which advisors are compensated for products they recommend.
- Fee-based, where advisors charge for advice and sometimes also get payments for recommended products.
- And fee-only, where advisors charge clients directly for advice and any regular financial management ― and receive no financial benefits for what they encourage clients to do.Because NAPFA says the first two compensation models can present or appear to present conflicts of interest, the organization recommends the fee-only compensation method. Fees can vary, but planners, on average, charge about $100 to $500 an hour; money management services can cost about 1 to 2 percent of your assets, according to Kiplinger.
- How do I find the right one? With more than 100 financial planning industry professional designations, NAPFA suggests you seek out an advisor who is either a Certiﬁed Financial Planner (CFP); Chartered Financial Consultant (ChFC); or Personal Financial Specialist (CPA/PFS), a designation given to CPAs who meet certain requirements. Trying to find more information about an advisor you’re considering? U.S. News & World Report’s Advisor Finder tool has data on hundreds of thousands of advisors who can be searched by state or name.
- What questions should I ask? The SEC recommends meeting in person and, in addition to asking about their experience and credentials, find out the following:
- The planner’s typical fee, hourly rate or commission
- If there are any limitations on the number of services or products the advisor can recommend (and why)
- If the advisor has been sued by a client or disciplined by a government regulator for improper or unethical conduct
- If the advisor has worked with many people in your particular age group/situation
- If the advisor is registered with the SEC, Financial Industry Regulatory Authority or a specific stateYou might also find it helpful to get a copy of the Form ADV — a document investment advisors file with their state securities agency or the SEC — from the Investment Adviser Public Disclosure website. The Form ADV lists fee information and any infractions, charges or other issues the advisor has been involved in, which can help you decide if you want to work with a particular planner.
1 BMO Harris Bank and its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors.