Trust Planning

Trust Planning

Estate Planning and Wealth Management

How to Choose a Financial Planner

Based on an article by Liz Weston on MSN Money Central—original no longer available on-line.


If you currently have a trust, it's important to have a professional manage it. Perhaps you have already made the mistake of designating a bank as trustee. If so, to ensure the integrity of the bank-trustee, it's important to have an independent financial advisor continually review the performance and asset allocations of the trust. You will want to hire your own financial planner to do this. The best planners to hire are called “fee-only financial planners.” The article in MSN Money reveals key secrets that unscrupulous money managers may be keeping from you.

What qualifications should a financial planner have?

Secret #1: Your financial planner may have no qualifications or education. Weston recommends looking for Charted Financial Consultant (ChFC) or Personal Financial Specialist. There is also a Certified Financial Planner (CFP) mark that can set apart some planners from the rest. Be sure your financial planner has one of these certifications, and be aware of how much experience is under their belt.

Is your financial advisor acting in your best interest?

Secret #2: Some financial advisors are in the business of selling investments, and are NOT primarily there to address your true money management needs (unless the two just happen to overlap). However, financial planners with integrity do exist and will act suitably to meet your fiduciary needs. In this case, Weston recommends asking for a copy of the code of ethics your planner must abide by. Fee-only financial planners are required to take a fiduciary oath that ensures they will only act in your best interest.

What is the difference between fee-only financial planners and fee-based financial planners?

Secret #3: Fee-based financial planners earn money on commissions (a kickback really) from financial products they sell you. Ask your financial planner where his or her income comes from. For proof, you may request a copy of form ADV, Parts I and II, as long as he is a Registered Investment Advisor (RIA). If he isn't registered, the state should have an equivalent form that gives the same information. Both forms reveal specifics on commission and other fees.

A fee-only financial planner is by far the best. These highly ethical planners, get their income solely from your fees and not from industry commissions.

Should my financial advisor focus on one main aspect of my finances?

Secret #4:When only one aspect of your financial situation is reviewed, you are never getting the best advice. Both your estate plan and taxes play a significant role in your entire financial circumstances. To receive the best money management advice, all aspects should be considered. Find an adviser who looks at the totality of your finances.

Should my financial planner be recommending financial planning alternatives?

Secret #5: Sometimes financial planners will only offer advice in the areas they've been trained—a training which can be woefully incomplete. This results in a skewed perspective of how your money should be optimally handled. If your financial adviser is knowledgeable and has diverse training, he or she should be able to suggest many alternatives for your finances.

My financial planner wants to beat the market. Is this a good indication? Will good financial planning beat the market?

Secret #6: This is a complicated question. The best financial advisors will construct a diversified portfolio that can, with good luck, outperform the market in most years (consider, for example the top university endowment portfolios—many of them were up 22% in 2011). But a planner promising unbelievable returns should not be believed (think Bernie Madoff and his Ponzi scheme; university endowments only shoot for 6% above inflation as a yearly average). And, you should expect your money manager to look beyond the stocks you hold, to consider other areas of finance, such as: tax, estate planning, retirement planning, protecting and improving your credit score, insurance, and a suitable annual budget.

Is trend chasing good money management?

Secret #7: In short, no. Typically, a financial advisor who is racing after the newest market trends is not a good person to manage your money. They should maintain a diversified portfolio that probably will include sectors, like high tech and real estate, that may or may not be currently in favor. Then they should help you stick to your investment philosophy for the long run, so you are not buying into and out of a market based on short term fears or speculative greed.

Is it necessary to do a background check on my financial advisor?

Secret #8: Yes, take the time to look into the past history of all financial advisors you consider. If the financial planner has censures recorded by a regulatory board, he or she may not be a good person to do business with. In the ADV form, mentioned above, you can look into your financial planner's background. You can also do research at your local courthouse and state insurance department, or the SEC. Most states have a department that you can call or check on a website for any complaints registered against those who invest or give financial advice. You can also contact the certification organization if they hold a credential such as CFP.

The SEC: how to get background information on money managers

The US Securities and Exchange Commission (SEC) has a very through page explaining how to check out brokers and investment advisers.

Use the FINRA Broker Check

FINRA (a Wall Street organization that self-regulates the brokerage industry) has an on-line broker check, plus a link to state regulators with information on financial advisors.

Other Fiduciary Resources

Other "estate planning basics" articles on our site:

How to Choose a Trustee
Conflicts of Interest Common in Estate Planning
The Hidden Side of Managing Money
Common Estate Planning Mistakes
How to Choose a Financial Planner
Choosing the Right Executor for Your Estate
Socially Responsible Investing and Big Banks

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