7 Tips for Selecting the Right Financial Planner

Here are a few tips to help you choose the right Certified Financial Planner CFP or Chartered Financial Analyst CFA for your investments.

1. Ask for their credentials. All professionals have certifications and professional degrees. These degrees and certifications tell you that this individual has been trained, educated, and have passed testing and requirements from their professional association and the SEC. Never work with anyone who is not certified or chartered by the professional association that governs the conduct of that profession.

2. Ask the Financial Planner their investing philosophies. There are numerous theories, portfolio diversification methodologies, and strategies. Your Financial Planner should have a well thought out philosophy that goes beyond the canned phrases such as “we are here to help you” or “we care about your investments” which are merely slogans for their firm. What you want to know is the following:

2.a. Find out the risk factors involved, by asking if they are risk adverse or aggressive growth. A valid Risk Analysis by an independent 3rd party Risk Assessor provides an unbiased opinion on the true risk of the funds being suggested to you.

2.b. Do they use the standard portfolio diversification OR are they using the new, modern approach to diversification. It may sound great that a diversification method has been around for 60 years however, that is not a good thing. The market structure and investing has changed dramatically in the past few years. Newer methods are superior and provide higher Rate Of Investment ROI.

2.c. How current is the Financial Planner’s education. Every Financial Planner must keep current with the continually changing market structure. This requires yearly training and continuing education just like teachers, doctors, and other professionals must do.

3. Is your Financial Planner an independent, Franchise, or a division of a larger financial services company? This is critical information you need to know before handing over your hard earned money to any advisor.

3.a. An independent Financial Planner works independently and can offer funds based on their own personal assessment and philosophies. The downside to this type of Financial Planner is they are an entrepreneur, often a very small business, and have limited resources for research and analysis of various funds. If they do not have access to reliable information, fund analysis could be more limited to highly popular yet lower ROI funds.

3.b. A franchise is a small business that is legally tied to a much larger corporation that sells franchises. The franchisee must sell products and services designed by and structured by the large corporation that sold the franchise to them. Their strategies and fund offerings will be dictated by corporate franchise mandates. This may be a conflict of interest at times if the franchisee feels compelled or is compelled to promote a specific fund, because the corporation wants to sell that fund to investors.

3.c. A division of a larger financial services company means that the Financial Planner works for and is an employee of a large financial services company that creates, markets, and sells funds to investors. This type of Financial Planner must promote and offer whatever funds the corporation deems correct for the corporate business model. This can become a conflict of interest at times if there is a limited number of fund offerings, or if corporate is promoting a specific fund heavily.

4. Does your Financial Planner have a complete education on all 3 levels of market and fund analysis?

4.a. All Certified Financial Planners have an excellent education in Fundamental Analysis.

4.b. Risk Analysis is also a critical area and this needs to be clearly and concisely explained to you exactly what the risk factors are. If the recommended fund is a Fund of Funds, then the additional risk associated with a Fund of Funds must be clearly explained to you in simple layman’s terms. Understanding the stock market is not rocket science. Anyone can learn how to buy and sell stocks, and how to invest.

4.c. Technical Analysis is an essential analysis tool that all Financial Planners need to be able to do at least on the basic level. They do not need to be expert technical analysts but if there is no Technical Analyst TA on staff, or if your prospective Financial Planner scoffs at technical analysis, be very wary. Technical Analysis is the study of price for a fund in a chart form. This gives you the easiest way to see what your funds are doing, how they are performing against other funds, and whether the funds you own are actually trending up or if they are trending down. Just having a percentage number or other statistical numbers is not sufficient in our modern markets. Using charts to follow the growth or decline of your fund gives you a window into the markets. Technical Analysis is the only way you have of monitoring your funds performance quickly and easily.

5. Does your Financial Planner treat you with respect. Do they consider your viewpoint, expectations, and your requests. Working with any professional requires mutual respect. You should not be treated as if the concepts of investing are impossible for you to learn or understand. Explanations should be simple, concise, and make sense.

6. Your Financial Planner should always maintain a professional conduct and manner. A Financial Planner can never be a good friend, because being too friendly puts you at risk. If you feel your Financial Planner is a friend rather than a professional advisor, it will be far more difficult for you to maintain an unemotional attitude toward them. You may feel compelled by this friendship to go along with their suggestions, even though they conflict with what you believe is best for your investments. Although it will be tempting to want to have a close friendly relationship, the more you maintain a professional relationship the better you will be able to make unemotional decisions for your investments. Being too close or too emotionally connected puts you at risk of making decisions based on your feelings of obligation to a friend, rather than decisions based on what is right for you and your investment goals.

7. Experience matters even more in the Financial world than anywhere else. A younger Financial Planner may be fully capable, have scored excellent marks on their testing, and know many new things about investing. However a young new Financial Planner will not have the experience of having been through Bull markets, bear markets, and sudden catastrophic events. They will not completely comprehend risk because until a loss is real, the loss is incomprehensible.

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