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The whole point of investing money is to have it make more money for you and be available when you need it – whether that future need is to buy a home, take a grand vacation or fund retirement. Everyone has different goals for their money. Sure there are the common ones like retirement, but what that looks like and all the financial elements of it are incredibly unique. As unique as the individual.
Because each investor is unique, they will have different needs in a financial planner. Sometimes it’s about experience or exposure to certain investments or businesses, while other times it’s more about the personality and the fit between two people. It may even be a combination of factors that leads to one financial planner being a better fit for you over another. However, there are some common factors to discuss and have in place before moving ahead with anyone you are considering as an investor and caretaker of your money.
First and foremost, ensure any financial planner you are considering is a certified financial planner with a CFP designation – make sure they have the right to use the CFP designation. Becoming a financial planner through the CFP course isn’t easy and isn’t for everyone. It proves that not only has your potential planner completed a CFP course, but that they have passed the CFP exam and completed three years of qualified work experience. They are certified by the Financial Planning Standards Council and have the authority to use the CFP designation.
Those who have considered becoming a financial planner generally do so because they like to work with people and finances and want their clients to have a sound financial future that meets their goals and dreams. Ask your friends, family and co-workers who are in a similar stage of life (ie – you both have kids in elementary school, or you both are nearing retirement) about who they use so that you know the prospective financial planner has experience and knowledge working with people in the same life stage as you.
Before heading into a relationship with a financial planner and your money, take some time to do the background research into what it is a financial planner actually does. Look at who they work for and how they are paid (pay structures vary, planners may be paid by commission, hourly rate, flat fee, salary by their firm, a percentage of assets, etc.). Financial planners who work on a commission-based structure may have ulterior motives in suggesting certain products or they may not be able to offer a full range of products that you have heard about and are interested in. Always keep your goals top of mind when looking at what the prospective financial planner can do for you.
For example, at one financial institution, the on-staff financial planner is paid by the organization, so there are no commissions or fees charged to the client, however, they are bound to sell only a certain range of products. When a retiree wanted to invest the proceeds from the sale of her home and receive a 5 per cent payout annually on her investment (the amount that met her budgetary needs for her lifestyle), the planner was unable to meet those needs because the products he represented did not offer a 5 per cent payout – it was confined to two other rates. Despite the retiree liking the personality of the financial planner, trusting him and seeing that he was a registered CFP in Canada, it wasn’t enough for her to sacrifice her personal needs to work with him.
The role of a Certified financial planner is to advise clients on how they can best save, invest, grow and use their money now and into the future to meet their goals. If the products they offer are unable to meet your personal goals, it’s time to look at other prospective CFPs. Also be sure the financial planner you consider specializes in the area you need expertise in. This could be retirement planning, young-family planning for the future, the extremely wealthy or estate planning. While all financial planners have the same base education, many will branch out into their preferred area.
Ask any prospective financial planner where you can review their code of ethics. Their code of ethics is basically the ethical standards the CFP has committed to in their practice while working for clients. You’ve heard the term “fiduciary duty?” It’s when one party (the fiduciary) has a legal or ethical obligation (duty) to another party. It comes into play with a doctor and a patient, a parent and a child and a financial planner and his client. Look for words or phrases indicating the code of ethics includes fiduciary duty to you to ensure the financial planner will treat you honestly, in good faith and with your best interests at heart.
While the CFP designation is a good place to start in trusting a prospective financial planner, it doesn’t screen out every negativity. During your first meeting, ask three things: have you ever been convicted of a crime? Have you ever been under investigation by a regulatory body? Ask for references. Yes, the very shady characters might still weasel their way through these three things, but if the answers come back right and your gut is telling you it’s the wrong fit, move on to someone else. This is your money you’re investing. Don’t let a few smooth answers from the wrong person cheat you out of a single cent.
At this stage in your life, do you want regular contact with your financial planner? Is it important that you have monthly updates in person or by phone? Not every planner is able or willing to commit to this kind of involvement. Know your preferred style during the exploration process so that you can find someone you align with. Also keep in mind that while you may not need more than a twice-yearly paper statement and a once-a-year meeting in the young-family stage of life, you may want to change that style as retirement approaches.
Finding the right financial planner isn’t just an option, it’s essential to making the most of the money you have now and in the future.