How to Choose a Financial Planner

A change this month in how professionals offering investment advice are regulated has added a layer of confusion to the already murky process of choosing a financial planner and/or an investment advisor.

Beginning Oct. 1, anyone offering investment advice on a fee basis must be a Registered Investment Advisor and function as a fiduciary. That is a far higher standard than the "suitability" standard under which the brokerage industry has traditionally operated. Under that standard, brokers didn't have to do what was in the best interest of their customers. Under the fiduciary standard, the advisor must do what really is best for the client.

Picking a financial planner and/or an investment advisor is a tricky process. Planners are often asked how much they have under management, but the question can be irrelevant. When asked of an advisor that manages money and that is what the discussion is about, the question is entirely appropriate. When asked of a financial planner in the context of financial planning, it is totally inappropriate and irrelevant.

There are many excellent Certified Financial Planners that do not manage money and charge only fees to do the planning. For planners who wear both hats, the amount of money they manage on the investment side has little or nothing to do with the financial planning function. The amount of money they manage should have no relevance in evaluating them as a financial planner and the question should not be asked.