Like many of you, I managed my own finances for several years thinking that I could save a few bucks by not hiring a financial planner. But could you blame me? I was 23, new to the Big Apple, just trying to survive week to week and keep any discretionary income I had in my pocket so that I could enjoy a little taste of this sleepless city.
I was consistently saving in a high-yield savings account and contributing to my 401(k). I thought that was good enough, but as I started covering personal finance at Black Enterprise and interviewing people my age and younger who were much further along in their finances, I grew curious as to how they did it.
Many had family members who showed them how to invest or bought them stock as children, while others shared with me that upon graduation instead of getting a car or having a big party, their families paid for a one-hour session with a financial planner (a gift that I will be giving my brother who is a recent college graduate. Congrats Huskies!)
Having that individualized and personalized investment advice gave them a leg up. They were further along in retirement savings, personal savings, and were already investing in stocks and ETFs. I knew that it was time to take my finances to the next level, but I needed help getting there.
Working with a financial planner over the years has been worthwhile. Here are some tips that helped me along the way:
1. Go With Your Gut
I got tons of referrals for financial planners from friends, family and colleagues. Just because you got a referral from someone you trust and love doesn’t mean that that planner is right for you. When selecting a financial planner make sure it is someone you feel comfortable with. A piece of advice I got from Chris Long, a registered financial adviser and CFP of Long Financial Planning in Chicago is, “If [financial planners] get angry, defensive, or try to make you feel dumb, that means they’re trying to hide something. You don’t want to work with someone like that.” He’s right. Just because they’re an expert, doesn’t mean you should accept anything less than professionalism. Find a planner who fits your individual needs, who takes the time to explain their recommendations to you and shows you how they can help you meet your financial goals.
Resource: Visit the National Association of Personal Financial Advisors to find a directory of financial planners. Also, check out some of our past Financial Fitness stories to identify some of the planners BE works with.
2. Find a Fee-Only Planner
“Find an advisor who doesn’t get paid a commission and doesn’t sell products,” Long also shared with me. A fee-only planner only gets paid for the advice they give. They do not earn a commission by selling life insurance or mutual funds where on the other hand a fee-based planner earns fees from the advice and a commission on some of the products they sell you. Commission based planners make money from the products they sell.
“You want to work with someone who has your best interest,” he adds, “and doesn’t push products on you.”
3. Do a Background Check
Finding housing in New York can be an interesting process. I know what you’re thinking. What does this have to do with finding a financial planner? Stay with me.
Two years ago, I used a real estate agent who came highly recommended from a friend. I should have done more research and asked for client referrals instead of taking one person’s word, but I didn’t. Anxious to move into a new apartment, I just decided to work with her. Seeing my eagerness and money in hand, she took advantage of me placing me in an apartment with a crappy landlord (who I should have also further investigated). Needless to say, a month later, I was moving out and lost more than $3,000 in real estate fees, first month’s rent and security. It was a lesson that I will never forget. No matter how nice a person seems, if they go to your church or know your mother, get more than one reference. What type of reputation do they have?
Resource: Use websites such as SEC.gov, FINRA.org, the Attorney General’s office in their state and check with their state insurance commissioner to research brokers and investment advisers.
4. Prepare Before Your Meeting
Before I made the decision to work with a financial planner, it seemed like I had a new question I was asking myself every day. Should I split my retirement contributions between a traditional 401(k) and a Roth 401(k)? How do I select ETF’s? Can I create a more personalized asset mix instead of sticking with my target-date fund? How do I do that yet still make sure that I’m diversified and safeguard my portfolio against deep sudden losses? These are all questions that rattled my brain and I’m glad they did.
Create a list of questions, goals and prioritize them. It will give the financial planner a better sense of your short, mid, and long-term goals. Don’t worry about trying to impress your financial planner or put on an act. If one of your goals is to go on a vacation out of the country next year, write it down and how much you think it will cost. Your financial planner will help you figure out what goals are realistic and offer suggestions and adjustments.
5. Understand the Fees Involved
In addition to not seeing a financial planner because I thought I had it under control, I also avoided setting up an appointment because I thought the fees would be astronomical. I didn’t know the true cost of a planner.
Before you dismiss the idea of working with a financial planner, find out how they charge and how much they charge. You will find that fee-only planners can charge an annual retainer, a flat rate, a percentage or performance-based fees or an hourly rate. Most charge an hourly rate of $150 to $300 per hour. A good tip that I got from attending a finance seminar some years back is to always get an estimate of the total hours you’ll be billed before you hire a planner. That’s why it’s important to have all your statements in order and a list of goals. It can save you time and money.
It’s recommended that you meet with your planner semi-annually or more often especially if you are considering a major life change such as leaving your job, starting your own business, getting married, or starting a family. So far, annually has worked out for me, but discuss how often your visit should be with your advisor.
Resource: If you’d like a free consultation to test drive what it’s like to sit down with a CFP and the types of questions the he or she will ask you, visit The Financial Planning Association. The organization can also help connect you with a planner to work with long-term.
What are some other tips you’d share about your experience of finding and working with a financial planner?