Financial Planning Basics

Investing wisely is one part discipline, one part common sense — and one part knowledge. It doesn't require an advanced degree, but it takes time to master the basics of investing and to stay on top of your accounts over time. If you don't have the time or interest to invest on your own, there are professionals who can help. The challenge is to identify a financial professional who is a good match with your situation — someone with experience, integrity and a working style that makes you comfortable. Here are some things to keep in mind if you decide you need experienced guidance in managing your retirement assets.

Financial Planning Basics Takeaway Information:

  • Ask for referrals
  • Consider more than one name
  • Ask about background
  • Ask about compensation

Ask your friends and family for referrals.

The best recommendation for a financial professional is a personal one. If someone you know and trust is willing to recommend a financial professional, that's a check in the plus column.

Look for recommendations from someone whose life circumstances are similar to yours. Your nephew, the technology multimillionaire, may offer you a name, but it may not be a good match.

Your goal is to find a financial professional that has built his or her practice around investors who are like you in their goals, lifestyle and net worth.

Consider more than one name.

You're hiring the chief financial officer of your investment plan. Interview at least two or three candidates before you make a decision.

Come prepared with a list of questions about the candidates professional experience and credentials and investment philosophy. Ask the candidate to describe his or her "average" client. If you feel you fit the profile, you're on the right track.

Ask about education, experience and specific training.

Unlike a physician or a teacher, there's no easy way to determine whether a financial professional has adequate training or education. In fact, anyone can use the title "financial advisor" without training, education or experience.

However, most financial professionals seek to demonstrate their expertise by gaining one or more of the following designations:

  • Certified Financial Planner (CFP®). 
    Requires years of training and testing on financial subjects, continuing education to update knowledge and adherence to a prescribed code of ethics.
  • Chartered Financial Consultant (ChFC®). 
    An insurance professional who has completed courses on financial subjects and continues to update knowledge through additional coursework and testing.
  • Chartered Financial Analyst (CFA®). 
    Must pass three rigorous exams, have at least three years of experience and commit to a code of ethics and professional standards of conduct. Continuing education is voluntary.
  • Registered Investment Adviser (RIA®). 
    Indicates that the adviser has registered with the SEC or with their state securities board (depending on the amount of money they manage).

There are numerous additional designations, indicating specialties in estate planning, divorce, personal financial planning, insurance, retirement and others. 

Ask about compensation.

Some financial professionals charge a percent of assets under management, which may go down as the size of your account goes up. Others charge a flat fee or an hourly fee.

Some managers are compensated based on the products they sell you. And some professionals have more than one way to charge, depending on the service they provide.

Ask for a clear statement as to where compensation comes from and how you will pay. Don't hire anyone who is not clear and forthcoming on this question.