Questions to Ask a Financial Planner
Do you do comprehensive financial planning?
Comprehensive planning should include: review of insurances (life, health, auto,
homeowners, disability, LTC, etc.), investments, cash flow analysis, tax analysis,
estate planning, elimination of debt. Consideration should also be given to a person's
age, career status, family situation, and financial experience.
Do you work for an insurance company, investment company, or a broker-dealer
that manufactures insurance or investment products?
Some planners are required to either recommend only proprietary products or are
given incentives to do the same that may affect their level of objectivity.
Are you paid by fees, commissions or both?
If fee, do you charge a flat fee or an hourly rate? If commission, does that offset
the fees, if any?
Generally, when you pay someone a fee, you are paying for their advice. Since you
are paying for their time they can assist you in the many areas of planning that
do not lead to a product sale. When someone is paid commissions only, although they
may do comprehensive planning, they would only be compensated on the specific financial
transactions, such as insurance or investments, and those commissions could be many
times higher the first year than subsequent years.
What is your process and how many times will we meet?
Generally there will be a series of meetings that may include factfinding, presentation
of the plan, a series of implementation meetings, and on going reviews. After the
initial year, reviews may be offered once or twice annually, and may be in person
or by phone.
How many clients do you have?
Generally people that do comprehensive financial planning will have 50 to 100 clients.
If they have fewer, it may be due to either being new to the business or they limit
their practice to a small number of high net worth clients. If they have more, especially
if it is in the hundreds, they may be more transactional in nature and may provide
a more basic planning service or provide a lesser amount of ongoing service and
review.
What percentage of your compensation is from fees and from commissions?
This will show you their preferred approach to doing business. If they are transitioning
from commissions to fees it may be helpful to see how the current breakdown compares
with 2 to 3 years ago.
Do you think it is good to pay off my house by retirement?
Sound financial planning should be prepared for the worst case scenarios. These
would include natural disaster, national crisis, economic disaster, loss of job,
declining health, premature death etc. When one or more of these things happen,
owning your house free and clear can add some stability to your financial situation
and increase your peace of mind. A planner that recommends you borrow from the equity
in your home to make financial investments may receive compensation for that advice.
That compensation may affect their recommendations when it comes to what is in your
best interest and could reduce your peace of mind.
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