Barbara O’Neill, Ph.D., CFP®
Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension
With new tax laws, investment products, and other frequent changes, managing your finances can be complicated. A small step that many people take to help them manage their money wisely and build wealth over time is to hire a professional financial advisor. Getting financial help is a little like building a house. Most often, it takes a whole team of people to get the job done—a plumber, electrician, carpenter, carpet layer, roofer, and more. To get your financial house in order also takes a team of professionals—banker, tax preparer, attorney, insurance agent, employee benefit counselor, stock broker, and/or financial planner.
Each type of professional advisor brings to their clients a specific type of expertise. The human resources consultant at your place of work may help you make investment decisions regarding your retirement plan. Stock brokers and financial planners are most likely to provide investment advice. Insurance agents can provide access to investment products through cash value life policies and some banks also sell investments.
Financial planners consider your total financial situation to develop a comprehensive plan. This involves taking a "snapshot" of where you are now via a net worth statement, identifying where you want to be financially (e.g, buying a house, financing a child’s college education, living comfortably in retirement), and developing recommendations to help close the gap between what you have now and what you need to meet your life’s goals. Financial planners specialize in helping their clients meet short-, intermediate-, and long-term financial goals, and managing risk with insurance, investments, tax planning, retirement planning, and estate planning. Making decisions about one area of personal finance, such as saving for retirement, often has implications for other areas, such as tax planning and investment choices.
Working with someone who can give you the complete picture, and can call upon specialized experts (e.g., lawyers, accountants), when needed, has advantages for some people, but there is a cost. Advisors affiliated with a particular brokerage or insurance company are paid by commissions on the sale of products (example: mutual funds with a load or sales charge) to their clients. There are also fee-only financial advisors who do not sell securities. Instead, they are compensated by a flat fee or an hourly charge, similar to lawyers. Some advisors also manage their clients’ assets for a percentage (example: 1%) of the assets under management.
To find a fee-only financial planner near you, visit the National Association of Personal Financial Advisors (NAPFA) Web site www.napfa.org or call 1-888-FEE-ONLY (1-888-333-6659). Another source of names of local advisors, who are compensated in a variety of ways, is the Financial Planning Association (FPA). A majority of FPA members are certified financial planners. FPA provides the names of advisors by calling 1-800-282-PLAN or on the Web at www.fpanet.org. Another option for professional advice is to hire a CPA with the personal financial specialist (PFS) designation. For further information about CPAs with the PFS specialization, visit www.cpapfs.org.
Though credentialing for financial planners is not required by federal or state law, it is recommended you seek someone who has met certain standards set by well-recognized organizations. The best known credential is CFP (Certified Financial Planner), which is administered by the Certified Financial Planner Board of Standards in Denver. A Chartered Financial Consultant (ChFC) has successfully completed courses from the American College in Bryn Mawr, Pennsylvania. For financial planners who sell or manage assets, being registered with the SEC or the state where they practice is required.
When hiring a financial advisor, request a written agreement that describes the services to be provided. Then keep up your end of the relationship by providing prompt and accurate information about your current financial situation, your financial goals, and your tolerance for investment risk. Advisors are required, by law, to make recommendations that are suitable for you; so they need to know a lot about you and your objectives.