How to Pick a Financial Planner

I have mixed feelings about financial planners. Most of them are salesmen sporting extra credentials and spreadsheets. They feel your financial pulse, tell you that you’re sick, and recommend a battery of expensive products. The companies that make the recommended products (insurance companies, stock brokerages, and sometimes limited partnerships) pay them a commission on your purchases. If and when you discover this conflict of interests, they tell you that they are doing you a favor, because somebody else is paying their fees.

On the other hand, many financial planners are truly in business to help you. Usually, these are “fee-only” planners. Unlike “commission-based” planners, they make their living by charging you directly – either by the hour or by the job.

There’s a third category of planners out there that you need to know about: “fee-based” and “fee-offset.” Don’t confuse them with “fee-only” planners. As I’ve had the misfortune to discover, they are “ambi-remunerative” (to coin a word). That means they charge you for their time … and then collect a commission from your new life insurance company for the annuity you just bought.

Not all financial planners who work on commission are bad. But – for me, at least – they are all suspect. If you want to avoid worrying about why your financial planner is recommending an annuity rather than, say, a no-load mutual fund, hire a fee-only planner.

Commission-based … fee-only … fee-based – there’s plenty to choose from. There are 50,377 certified financial planners out there. That’s up from about 30,000 five years ago. Newsweek devoted a section of its recent issue to this rapidly growing industry – an explosion fueled, in large part, by the increasing number of baby boomers trying to figure out when they can retire.

How, then, do you decide on a financial planner who’s right for you?

For one thing, make sure that anyone you hire is a CFP (certified financial planner). Many so-called planners (as well as legitimate ones) will tack an array of other impressive-looking initials onto their names: ChFC, PFS, CFA, RIA, and CSA, for example. But in that Newsweek article, financial writer Jane Bryant Quinn correctly warns against this “alphabet soup of new designations. Many are trumped-up titles from self-proclaimed institutes,” she says, “mainly to give cover to high-pressure salespeople.”

The North American Securities Administrators Association ( agrees. They warn especially against “elder” or “senior” specialists. They get minimal training, the association says, and have as their main mission “selling high-cost investments to older people.”

If you want a qualified, fee-only CFP to manage your money, expect to pay $150 to $300 an hour, or up to an annual fee of one percent of your assets. Quinn recommends that you look for someone with at least five or six years of experience. “You don’t want them learning their trade on you,” she says.

If your financial situation is relatively simple (meaning you have a net worth of less than a million dollars), you don’t need a highfalutin service to help you. A smart guy who talks to you for an hour and then spends a few more hours on a budget and a page of investment recommendations is enough. This should cost you about $500.

If your net worth is higher than a million, you’ll want more detailed advice. You may be able to get some modestly priced help with tax and estate planning, but beware. Estate planners are usually – you guessed it – insurance salespeople in disguise.

I know a lot of wealthy guys who have people manage their investments. And when the markets are good, they brag to me about how much money their managers are making them. When the markets soften, I don’t hear anything about these wizards. I have to assume that they aren’t doing as well as they once were.

I am not big on paying someone a lot of money to micro-manage my portfolio, because I am content with having my passive income earn market rates. To get a stock market return that tracks the average, you need only put your money in a no-load index fund and let it ride.

When I consider my financial situation from a planning perspective – and I do this about once a year – the only thing I’m really concerned about is allocation. In other words, what percentage of my wealth do I want in real estate, stocks, bonds, gold, fine art, cash, and active businesses?

Those percentages change over time. During the last 10 years, for example, I had just over half my money in real estate. In the past 18 months, I’ve reduced that to about a third. If I can, I will decrease my real estate holdings even further. I’ll feel more comfortable if I can get it down to about 25 percent

Five years ago, I had about 50 dollars in gold. Today, I have about two percent of my net worth in that precious metal. I intend to continue buying gold for a little while – another one percent would be good. And then I’ll let it sit there and see what happens.

I have increased both my stock and bond holdings by about 50 percent in the past two years. I intend to buy more of each for a while.

I am reducing my stake in active businesses, but not because I’m worried about risk. When you invest in active businesses, you tend to work on and worry about them more than you do with index funds or municipal bonds. Since I want less worry in my life (and don’t need the additional wealth advantage), I’m doing some selling.

To me, this sort of thinking is critical to your financial future, so I don’t think you should turn over these decisions to someone else. Still, it’s a good idea to get a second opinion from someone you trust – especially if you’re new at wealth-building. I’ve got plenty of experience with investing – and I think I do a mighty good job of managing my own money … but I’m happy to pay a good financial planner to look at what I’m doing and tell me what he thinks.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]