How do you select a financial planner?
by Paul Stefansson, CFP, President
Hire your adviser the same way you would hire a CFO for your company.
In the past, many people selected their financial planners based on relationships - the planners were either good friends or relatives. However, consumers of today are more discerning - they are starting to ask hard questions. While it may be harder for us to sell, consumer financial education is good for the industry as it will lift professional standards.
In order to survive in this tougher environment, not only do we have to continuously develop ourselves professionally, we need to anticipate questions from potential clients. In other words, put yourself in their shoes.
If you were hiring a financial planner, it would make sense for you to go through the same rigorous checks as you would when you are hiring a Chief Financial Officer for your company.
Step 1: Interview a pool of candidates
If you need to fill a position as important as that of a CFO, it is unlikely that you will hire the first person that comes along, even if he or she is an excellent candidate. You would speak to a number of candidates to ensure that you hire the best person available. Likewise, when searching for a financial planner, it would be wise to speak to several before making a decision. After all, it is your hard-earned money that you are placing in his or her hands to manage.
Step 2: Check credentials and qualifications
It is important that the candidate has the right qualifications for the job. If you were hiring a chief financial officer, you would want someone who has a CPA. By the same token, you want to make sure that a person whois managing your family's wealth to be suitably qualified with a Certified Financial Planner (CFP) or Chartered Financial Analyst (CFA).
Step 3: Experience
Has the candidate managed a decent-size company's finances before? Does the candidate have enough experience to manage the finances of your company? It is unlikely that you would hire someone who is fresh out of school or worked in a completely different role to become your company's CFO.
Similarly, hiring a fresh graduate or someone who has little or no financial planning experience to be your family's CFO might be more than a little foolhardy.How many clients and for how long has your financial planner managed her clients' wealth?
Step 4: Background checks
Typically, in the hiring process, one would conduct reference or background checks to verify the candidate's integrity and to ensure that there are no skeletons hidden in her professional closet.
For someone who interviews a financial planner, it would be prudent to speak to existing clients on the reliability and character of the planner, and to make sure that her existing clients are happy with the work she has done. Another useful thing to look out for is to find out how many clients this financialplanner has. If she has a thousand clients, will she have enough time for you?
Step 5: Rapport
Another essential factor to consider when hiring someone is to make sure that you enjoy good rapport together. After all, you will be working closely with this person for an indefinite amount of time. It is also important that this person will fit into the culture of the organisation.
Most of us would want a financial planner who would work with us over the long term and not just on a one-off transaction.
Step 6: Tests
Usually, an interview process would include competency tests to check the abilities of the candidates. Similarly, giving the planner a task such as putting together a cash flow analysis, asset allocation analysis, or estate duty analysis might give you an indication of his/her technical proficiency.
Step 7: Questions
Sometimes, the types of questions that a candidate asks are a good guage of their personality or character. For instance, you will discover if this candidate is veryconcerned about the remuneration package like compensation, salary and other perks.
Likewise, the conversations you have with potential financial planners are fantastic litmus tests. For starters, if the planner does all the talking and rarely asks you any questions, your alarm bells should start ringing. Furthermore, does he or she ask the right questions? Does he or she focus on you as a person or on your money?
Step 8: Price
Finally, when it comes to salary negotiation, does the one who ask for the lowest salary equate to the best person (best skill set, experience, character and qualifications) for the job?
Just as you would not make a hiring decision based on the lowest salary, you would not hire a financial planner who offers the lowest fees or 'free' advice. You would want someone who excels in everything from steps 1 to 7. That, would be the best value for the money that you pay.
Paul Stefansson, CFP
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