Financial planners advise clients on best ways to invest and grow their money. They can help you tackle a specific goal, such as buying a house – or give you a macro view of your money and the interplay of your various assets. Some planners specialize in retirement or estate planning; others consult on a wide range of financial matters.
Planners are not the same as stockbrokers, who people call to trade stocks. Financial planners also differ from accountants who help you lower your tax bill, or insurance agents who may entice you with insurance policies.
Choosing the right advisor is very important to your financial well-being. This is someone you will trust with your investments, which makes it a high stakes decision.
How do they earn?
Typically, financial planners will earn a living either by charging hourly or flat rates for their service, or getting commissions – You may want to avoid these. A commission is a fee paid when someone buys or sells stock or other investments. They may not be the most unbiased source of advice if they profit from steering you into particular products.
A growing number of financial planners make money only from flat rates. They do not get cuts from life insurers or fund companies. You may pay a flat fee like $1,000 for a finance plan, for example, PR firms Toronto. You can also pay them an annual fee, which is often 1% of all the assets you own. Others charge by the hour like lawyers.
You can also encounter planners who cater exclusively to rich people, refusing clients who have less than $250,000 to invest. Do not take it personally, however – they could just prefer dealing with big accounts than beginner clients. You want someone who is interested in growing with you and focus on your concerns.
Finding the right planner
- Go for a CFP (Certified Financial Planner). A CFP has passed a set of tests administered by the Certified Financial Planner Board of Standards about the specifics of personal finance. CFPs must also commit to continuing education on financial matters and ethics classes to maintain designations. If possible, you want a planner with successful experience advising clients in the same life stage as you. You can also check if they have the National Association of Personal Financial Advisors (NAPFA) – this can be credible criteria, since they do not accept commissions.
- Consider the planner’s pay structure. If you are starting out and you do not have many assets, a planner who charges by the hour can be the best for you. They are best when your needs are simple. Typically, hourly planners are growing in their practice, but that means they will take care to get your finances correct.
- Run a background check. They are not former convicts, or any regulatory body putting them under investigation. Also, ask for references of current clients whose goals and finances match yours.
When it comes to your money, how well your investment does is out of your control. However, whom you choose to manage your money and investment is. For this reason, you will want to search potential candidates carefully and ensure that they have your best interests at heart.