Financial Planner Basics

Typically called a personal financial planner, a financial planner’s purpose is to assist you in creating your own personal financial plan tailored to your own needs.  Your financial plan may include retirement, investments and estate planning, among others. 

Should you hire a financial planner to assist you in your personal financial planning?  Unless you are well-versed on financial planning, the answer would be a resounding, “Yes!”

Video: Why You Need a Financial Planner

There is no current regulation of financial planners in this country; however, there are organizations created to self-regulate the industry, like the Financial Planning Association (FPA).  There are many organizations who certify financial planners through rigorous training.  One of the most recognized certifications is a Certified Financial Planner® (CFP®) certified by the Certified Financial Planner Board of Standards, Inc.  CFPs are promoted worldwide through FPAs.

Financial Planning Process

The International Organization for Standardization (ISO) adopted a six-step financial planning process for financial planners.  This financial planning process is generally accepted among personal financial planner professionals.  It assists your personal financial planner in assisting you in your financial planning venture.  The steps are as follows:

• Define services and client-planner relationship.
• Gather client data and goals
• Analyze/evaluate client’s financial status.
• Develop/present financial planning strategy with recommendations.
• Implement financial planning recommendations.
• Monitor financial planning recommendations.

Selecting a Financial Planner

When selecting a financial planner, there are several things you should look for, to include CFP® certification.  You should also check their disciplinary history before deciding on one.  You can do this through the Certified Financial Standards Board of Standards, Inc. website.  Just insert some search parameters and you’ll be provided specific details about the financial planner.  You’ll want to look for a checkmark under the heading CFP® to ensure they are currently a practicing financial planner.

The Security and Exchange Commission (SEC) is also a great reference for weeding out any undesirables.  You can do a search on their site for the company you are interested in using.

Once you have established that a potential financial planner is certified, has not been under disciplinary action and practices financial planning, you are ready for your interview with the financial planner.  There are 10 questions you’ll want to ask your financial planner in your interview.

• What is their experience – e.g., number of years practicing, number of different affiliations, relative work experience?
• Have them explain their qualifications.
• Find out what services they offer.
• Ask them for their strategy in financial planning – e.g., covers all the bases, or only a few.  Will they be carrying out your plan or refer you to others who will?
• Find out if they will be the only one working with you.
• Ask how you will pay them, and have them put it in writing.
• Request an estimate of the charges.
• Ask for a disclosure of any conflict of interests the financial planner would have in working with you.
• Ask if they had ever been formerly disciplined for unlawful or unethical actions in their professional career.  Check with your government regulatory and professional organizations.
• Ask for the agreement in writing.

Video: Certified Financial Planner

Financial Planners:  The Good, the Bad and the Worse

Wanna know the planners with the best reputations and the ones with the worst?  It’s good to know the names.  You’ll want to stay away from the bad ones, so that you can avoid the same hardship that others who used them experienced.  You’ll be surprised at some of the companies that were investigated by the SEC and other government entities.

• First Command Financial Planning, Inc. – In 2004, First Command settled with the SEC and National Association of Securities Dealers (NASD) for $12 million.  This company was charged with misleading military personnel in the sales of investments.  The company was also required to compensate customers for penalties in purchasing and early termination of their financial plans.
• Stanford Financial Group – In February 2009, the CEO of this company was served on charges of fraud.  Stanford Financial Group sold about $8 million of their own created certificates of deposits by promising rates of return higher than those available through traditional banks. 
• Merrill Lynch – In January 2009, this company settled with the SEC for $1 million.  They were charged with failure to disclose conflicts of interest when referring clients to the firms affiliated services.  They were also charged with misleading their pension consultant clients.
• H&R Block – In 2008, the NASD charged this company for selling their customers $16 million of worthless Enron bonds.
• Ascot Partners – If you’ve been watching the news lately, you’ll know this company and its CEO are in deep … well, let’s say … dung.  You can’t talk about fraud in the financial industry without mentioning Bernie Madoff’s company and its hyped hedge fund.  Many corporations and wealthy investors lost millions on this product.  This was truly one of the biggest rip-offs of the century where the company owner Mad-off with millions.
• Charles Schwab – In 2004, this company paid a fine of $350k to the SEC.  This company was slapped with a SEC investigation for market timing by US Trust and illegal late trading.
• Morgan Stanley – This company paid billions in a settlement with the NASD, SEC and several state security regulators.  Many of their largest brokerage firms were accused of defrauding retail investors.
• Prudential Financial – In 2006, federal, state and the Department of Justice (DOJ) pursued parallel settlements.  Prudential paid $600 million to settle misconduct charges related to improper market timing.

As with all fraud and financial mismanagement, customers lost money. In some cases, millions.  Although, there are plenty of unscrupulous financial planners out there, there are also those with good reputations.  Keep in mind that just because a company has had allegations against them in the past, doesn’t mean they don’t function honestly now. 

Although, it seems that all have skeletons in the closet, some have significantly less than others.  The one below hasn’t had any allegations of illegal trading practices since 1986, when David Brown, former Goldman Sachs CEO, was convicted for passing insider trading information on a takeover deal.

• Goldman Sachs – In spite of the subprime mortgage crisis of 2007, this company profited by short-selling subprime mortgage-backed securities.  This company received no monies from the 2008 bank bailouts.  Instead, Berkshire Hathaway purchased $5 billion in Goldman’s preferred stock with warrants to buy another $5 billion in Goldman’s common stock. 

Don’t write off all the other companies who were investigated for illegal practices.  Some of them are still valid companies to consider.  Some can tout legitimate success stories.

Do your homework, though, and ask your financial planner specific questions.  Make sure they are certified.  Get everything in writing before you sign off on any agreement.  If you do all of the above, you’ll find a financial planner who is equipped, able and willing to work your financial plan to its fullest potential.