How to Choose a Financial Planner

by AJ Pettersen · 7 comments

Financial planner

My wife and I are beginning to plan for our future. Part of this planning includes allocating our finances in the best possible way to meet our future goals. Up to this point, I have been handling most of the finances, but we are now considering meeting with a financial planner to get professional help. This is a common decision made by young couples, but where do we start?

How do we choose the right financial planner?


When choosing a financial planner, the first thing you should do is consider what their clients think of them. Do you have friends or colleagues that have used the same person? What do they say about their services? Recommendations give you a glimpse of what you can expect from a planner. If you hear concerns that you aren’t sure you want to deal with, move on and find someone else.


A Certified Financial Planner (CFP) gains instant credibility. This means they have taken classes and passed tests, giving them advanced knowledge in the area of finances. If they are not certified, it means they have not met specific requirements set by the state. Stay away from uncertified planners; ask planners what their certifications are, and research what it took to obtain those qualifications.


How long a planner has been in business is a good indicator of competence. Of course, everyone started somewhere, but those with years of experience have been through the ups and downs of financial planning. Quality practice leads to quality skills in important areas.

Pay Structure

This is one of the most important factors in your decision. Financial planners can use a number of different structures to determine what you pay for their services. Understanding these structures is important in your search.

Typically the most expensive form of payment is fee-only. In this structure, the planner bills you for certain services and/or by the hour. This can get expensive, but ensures that the planner is working in your best interests. Their incentives are aligned with yours in this structure.

Those who work on commission get paid on the products you purchase. This means that they may lead you toward a mutual fund or insurance package that makes them more money, but might not be best for you. If you are planning on finding someone who uses this form of payment, you need to make sure they have your best interests at heart. Commission-based planners may also get paid a percentage of your assets each year. This is typically under 2.5%.

Some planners use a combination of pay structures. This may include a flat fee for the initial consultation, followed by a commission-based fee. The commission fee could be based upon products purchased, assets managed, or both.

Understanding how a planner is paid is extremely important. Don’t be bashful when asking them how they are paid and what their incentives are. If they are motivated by reasons you are uncomfortable with, you should avoid them.

How Should You Choose?

Trust and full disclosure with your financial planner are important on both sides. You need to know their background and how they are viewed by their clients. Their certifications and experience will give you a good idea of how knowledgeable they are. Lastly, knowing and understanding their pay structure is the best indicator of their incentives.

Have you had experience choosing a financial planner? What was the most important factor in your decision?

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  • Alan Ron says:

    I just started one small scale organization in Dubai with just 25 peoples. I would like to know whether my organization needs a financial adviser or tax adviser for the growth of my organization. Till now me and my partner handles all the activities. If we need, then how I can recruit the best one for future growth of the company ???

  • Alex in Virginia says:

    Over the last few years, I have gone through the initial laborious assessment phase with 5 (or is it 6?) so-called financial planners. After meeting with them for up to three 2-hour sessions of questioning about my finances, goals, investment attitudes and so on, not one — NOT ONE — finally came back to me with an investment plan that responded to my repeated investment caveats. They did not listen. In one case, the guy simply WOULD not listen as he kept waving papers insisting that my investment risk tolerance was not what I kept repeating it was.

    In the end, I decided to continue self-managing my financial affairs and I don’t regret it.

    Oh — and the investment plan du jour from each and everyone of them? One — ONE — specified mutual fund and a large single annuity from one — ONE — issuer. Bah!

    • Steve B says:

      Financial planners have a fiduciary obligation to help you invest your money in a way that provides you the maximum benefit – even if their recommendations are not what you had in mind. It sounds like maybe your “caveats” run contrary to some investing principals and the planners you met with were not able to accommodate them in an ethical or compliant manner. They should have discussed it with you in those terms.

      What happens if they put you in those investments anyway? Glad you asked. They expose themselves and their broker/dealers to huge fines and legal liabilities. Your planner could lose licenses and credentials, effectively ending their career. It’s no small matter. Most good planners are quite creative and open-minded, but if your tastes are too unconventional, you’re probably stuck investing by yourself.

  • Boomer says:

    This is so naive. A CFP may be better than one that is not, but they take only 5 or 6 courses and a final comprehensive exam. Each course is on a different topic. They take only one course on investing. They are not experts in any one area.

    The best use of a planner of any kind is to let them be the quarterback. They can refer you to the insurance specialist, estate attorney, CPA for tax planning, and professional investment managers if you have enough money. But, most will sell you life and disability insurance, annuities and mutual funds. They do not watch markets constantly, and even if they do, they are not qualified.

    They need to take continuing education courses each year to keep their certification, but that does not make them good or knowledgeable at investment management. Most are salespeople.

    Fee only planners usually do not make commissions, but some do.

    You say fee only is the most expensive. Not true. Commission only is because in most cases, as you mention, they sell you what pays them the most. Annuities pay the best. It may not cost extra up front, but it does over the long run. Especially if it is not the right investment in the first place, sold to you only because it pays the most to the planner. Many times they have relationships with the companies whose products they sell you. They may not be the best products on the market.

    If you have to use a CFP, go fee only. At least they should be objective. They may refer you to friends to buy products in a reciprocal relationship. So even that may not be objective.

    Shop around for products. Everyone needs disability insurance when working, and most need term life until older. Shop these on the web. They are usually cheaper because the commission is lower.

    Do you really need a planner to help you budget, and then determine you have $1,000 a month left over to invest?

    I think if the average person spent as much time doing a little research as they do planning vacations or weddings, they can budget, buy term and disability insurance, and find the best mutual funds (with no commissions) on their own.

    You would probably be better off having the S & p 500 index fund, a foreign index fund like EAFE, and an emerging markets index fund.

    AAII did a study that shows the average mutual fund investor, on their own or with an advisor, averages less than HALF what the index averages over every 20 year period going way back. Look the article up. It is very recent.

    Most, not all, planners are, or were, in sales. That’s what pays them and stock brokers the big bucks. Not the fees.

    Did you notice that they do not call themselves brokers anymore? Even at the big brokerage firms they call themselves Vice President, CFP, CHFC (planning designation from insurance related group), Financial Advisor, or President of their own company.

    Other than CFP, there are no rules or education requirements to be a broker or financial planner. It is a sales job. And the company that issues the designation is a for profit business that makes a ton of money off the courses and continuing Ed courses required to keep the designation. They are not monitored by any governing agencies. Nor the state, as you say. CFP is trademarked and owned by the company out of Colorado.

    I know. I worked in the business for many years.

  • MoneyNing says:

    In the long run, the fee-only advisers will turn out to be much less expensive than any other payment structure since the money you pay them do not increase as your wealth accumulates.

    Also, almost everybody will call themselves a financial planner but make sure the person you choose to work with actually helps you plan your financial future. Otherwise, you may just be paying for investment portfolio management if all they are doing is offering investment ideas, which is a completely different service all together.

    • Aram Durphy says:

      Excellent point. Another reason that fee-only advisers are much less expensive is that they often manage your account in way that aligns with your interests, and thus maximizes your return for your risk tolerance. A commission-based adviser will often buy products you don’t need, or that under-perform, because those pay better commissions. A commission-based adviser will also be more likely to actively trade, increasing your transaction costs.

  • Kent @ Money Educate says:

    I think one important factor after considering all those you have listed, is do you like and trust them? You are going to be doing business with them for probably decades, so you want it to be someone that you and your spouse will feel real comfortable dealing with. Lastly, I think it is important to consider when meeting with a few potential planners to make sure that people meet both male and female financial planners. There are fewer female planners, but I find sometimes they provide some unique perspectives and skills the guys sometimes don’t.

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