How to Choose a Financial Planner

You've finally decided to admit it: When it comes to financial planning, you need help!

There's a huge amount of financial advice out there, ranging from free to extraordinarily expensive. It becomes complicated to evaluate and compare the services, costs (some hidden), and performance of all the people who are advertising that they're ready to help you manage your money.

The labels don't help much. The term "financial planner" can be used by almost anyone, and is often mistaken for those who truly can use the term "Certified Financial Planner," or CFP, because they have had extensive education, testing, experience and certification.

CFPs have passed courses not only in investments, but in insurance, taxation, estate planning, retirement income planning and other aspects of creating a well-rounded financial plan.

A registered CFP has a fiduciary duty to "at all times place the interest of the client ahead of his or her own." To learn more and search for a CFP in your area go to this Web site.

Certified financial planners may be compensated in different ways. Some only charge a fixed fee for their advice. They are called "fee-only" planners, and you can find them at the Web site of the National Association of Personal Financial Advisors.

Other planners are paid through commissions on the products they sell, or a combination of fees and commissions.

What about stockbrokers? Many brokerage firms now call their employees "financial advisors" or "wealth managers" instead of stockbrokers. These brokers may give investment advice -- but unless they are registered as "investment advisers," they do not have the same fiduciary duty to their clients to fully disclose all conflicts of interest, including commissions or other payments they earn on the sale of products.

Not all brokers have the same level of knowledge about investments. A CFA (Chartered Financial Analyst) is someone who has earned the highest achievement in investment analysis.

Most fall in between these extremes, but are but not necessarily trained in other important aspects of financial planning.

It can be difficult to determine who is on your side, and who is just trying to sell you a financial service or product. Some insurance agents call themselves planners, and you'll even find "financial planning consultants" who appear to work for a bank, but are actually employees of a brokerage firm within the bank!

What Advice do You Need?

As long as you understand the difference between these professionals, you can pick and choose the correct adviser -- or group of advisers -- to suit your needs.

If you already have a trusted insurance agent, then you may only need a stockbroker to guide you into investments. The brokerage firm may offer a "managed account" for a fee of perhaps 1%, on top of the fund fees and commissions.

If you don't want to pay fees or commissions, you may dispense with the stockbroker, and take advantage of the free portfolio advisory services offered by mutual fund companies such as Fidelity and Vanguard. Even funds with no "load" or upfront commission will charge annual management fees, so you should ask about and compare those costs.

If you're smart about investments, you may still need a qualified tax adviser -- probably a CPA (certified public accountant) -- to with annual tax filings and long-range plans. Your CPA will work with your estate planning attorney to make sure your tax situation is covered not only in life, but after your death.