What Should I Look For In A Financial Planner?
The shoes are too tight. The shirt is a little baggy. You hit your head on the roof of your car. Your socks don’t make it over your heels. These are all examples of poor fits that are easy to identify in our daily lives. It may not be so easy to identify the right fit when you are searching for a financial planner. How do you know if the planner is the right one for you? What should you be looking for when you interview different planners? Read below to find out.
Look for Fees
The price is right! Many of you reading this have watched that game show before. Unlike contestants on the show, you do not want to be guessing the price of a planner’s services. You want to look for a financial planner that is completely transparent about their all-in fee. Key word: all-in.
Some planners will only discuss their fee. It is typical to see a planner charge between 1-1.5% of money they manage. What they are less likely to disclose are the “hidden” fees like the ones below;
–Expense ratios: the fee that an investment fund charges to hold that fund.
–Custodian/Maintenance fees: the fee a custodian (think Charles Schwab, TD Ameritrade, Fidelity, etc.) charges to keep your funds with them
–Sales Load: the fee a mutual fund charges to enter or exit the fund
–Commission: a fee charged every time a trade is made in an account
Fee Scenario
Let’s take a look at a scenario regarding fees. Ms. Becker is looking for a financial planner. She finds a planner that advertises a 1% advisory fee. All the other planners advertise a 1.3% advisory fee. She meets with the 1% advisor, things go well, and she decides to hire them. One year later, she receives her annual report from her advisor, looks at her fee summary, and realizes that she has been paying a 2% total fee on all her money for the whole year. How can that be?
Well, what the advisor failed to mention was that there are expense ratios on the funds she holds, and the custodian charges a fee as well. Because this is technically public information, her planner is not bound to reporting anything other than their advisory fee. Her total fee now looks like this;
Advisory Fee: 1%
Expense Ratio: 0.75%
Custodian Fee: 0.25%
All-In Fee: 2%
Meanwhile, the planners that charged a 1.3% advisory fee have a fee breakdown like this;
Advisory Fee: 1.3%
Expense Ratio: 0.2%
Custodian Fee: 0% (their custodian doesn’t charge to use their platform)
All-In Fee: 1.5%
Had Ms. Becker asked about her all-in fee from the start, she likely would have chosen a different planner. There is a large issue in the financial services industry with hidden fees, so make sure the professional you interview is upfront and honest about all their fees from the beginning when you are looking for a financial planner. You should aim to find a planner that charges an all-in fee between 1-1.5%.
Look For Services
Let’s say you have interviewed multiple planners, and their fees are all in the standard range. What do you look for next? You need to make sure that the services you are paying for are worth the fee. As we have discussed in previous articles, planners will often offer a wide range of services. Some planners will only manage investments. Some may be insurance specialists. Find a planner that offers a comprehensive planning service. Ensure that the services you are receiving will support you in building a financial plan that addresses all your goals and dreams.
Trust Your Gut
Finally, and arguably most importantly, trust your gut. No, seriously, your intuition and instinct will be the most important influence when finding a financial planner. Financial planning is not like other services. It is not transactional, or at least it shouldn’t be. You can have your oil changed by anyone. As long as they are professional, the end result is the same. This is not the case with financial planning.
A financial planner will quickly become an integral part of your life. They will become intimately knowledgeable of every aspect of your life. Your planner will be there for your first house, first child, when you leave your job, move cities, retire and when family members pass away. They will help you navigate the best parts of life, and the worst. You want a financial planner that makes you feel comfortable, confident, and empowered in your finances.
If you walk out of an interview with a potential planner that has proposed an A-class service, but you left with a bad taste in your mouth, don’t hire them! Hire the planner that leaves you feeling like you had an hour-long conversation, not an hour-long presentation. You will know the right dynamic is there ten minutes into the meeting. Trust your instincts. Trust your gut.
This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.
