3 Essential Questions to Ask When Hiring a Financial Planner

Paul Miller |

When you entrust someone with your hard-earned cash, you are giving them the keys to your future. If you simply turn over your wealth to someone without asking them some important questions, you might as well be giving a stranger your money. Before you decide to work with any financial planner, it is important to get an idea of who they are and how they operate, so you can determine if that individual is the right fit for your investment approach. As you consider different financial planners, make sure to ask the following questions.

What are Your Credentials?

This question has many facets; each of which will determine whether or not you should work with that financial planner in the long run. While it is a good idea to ask your financial planner about their educational background, you should also focus on the certifications and licenses that individual holds as well.

A very familiar license is that of CHARTERED FINANCIAL ANALYST™ (CFA®). A CFA® has training and expertise in dealing with securities, financial analysis, investing, portfolio management, and banking. One step beyond a CFA® is a CERTIFIED FINANCIAL PLANNER ™ (CFP®). A CFP® has three years of experience working in the field of investing and financial planning, and has also passed a series of comprehensive tests. Best of all, you can verify this status by visiting the CFP® Board's site to authenticate a CFP®'s certification status.

Last but not least, you may also encounter a CHARTERED FINANCIAL CONSULTANT™ (ChFC®). These individuals have similar experience and core education as a CFP®, but have not passed a comprehensive board examination as none is required for this designation.

How Do You Charge? And How Much?

No one gives out advice for free, but that doesn't mean you should spend a fortune to try and amass reasonable wealth through investment and retirement plans. There are a number of fee structures used in the industry. Common examples include an hourly rate charged when you sit down for consultations and portfolio management meetings with your planner, or flat fees charged each month.

Another common fee structure is a charge that represents a percentage of the assets managed. In most cases, this is no more than 1% of the portfolio. Some advisors operate as fee-only financial planners, meaning they do not earn commissions for selling specific investments to you as the client.

On the other hand, some financial planners charge a commission on securities and financial products. Some even use a combination of payment methods. As a result, it is important to ask how your financial planner charges you and how much you are charged so you know what to expect.

What is Your Investment Approach?

This is the most important question you'll ask a potential financial planner. Their education and pay structure matter little if they don't use an investment approach that you are comfortable with. Generally speaking, Millennials have proven themselves more willing to accept financial risks than older generations. With that said, you want to know that your financial planner understands the line between risk and recklessness.

You want to find a financial planner that understands the value of a balanced and systematic approach, such as one that features monthly investments during your working years in funds that are more aggressive in your youth, but grow conservative as you age. It is also a good idea to gauge your potential financial planner's approach to portfolio rebalancing and risk controls. Leaving a portfolio in a passive state over time won't earn you any money, while rebalancing and controlling risks allows you to adjust your funds to remain in-line with your investment goals.

Ask any financial planner you plan to meet with these three questions and you'll have a better idea for the approach and experience of the individual you plan on entrusting with your financial future. Contact Paul Miller today at Indian River Financial Group to answer these and any other questions you may have.