What to Look for When “Shopping” for a Financial Planner

Engaging the services of a financial planner can be an anxiety-ridden step. Who do you chose? What will it cost? How do you know if the person is any good? Here are some practical tips to help you through the process.

What Do I Get When I Hire a Financial Planner?
As in so many areas of life, cost reflects value. The cost of a financial plan can range from “free” to tens of thousands of dollars, or even in excess of $100,000. How to evaluate the various options?

Lower value plans ($0 to $2500) are often fill-in-the-blank spreadsheets. What you may get is a range from boilerplate financial “advice” to spreadsheet projections based on unverified estimates of your income, expenses and asset values. The preponderance of this type of advice concludes with the purchase of some type of financial product. The plan “educates” the client about financial products or terminology.

Higher value plans will be very specific in dealing with your issues. Unlike computer-generated plans, which cannot be highly customized, a high-value plan will result in recommendations that are unique to your circumstances.

Complex planning issues also frequently do not have simple numerical answers. A deft human touch is required to make a financial plan work.

Good planning should take into account the interplay between liquid assets (like stocks and bonds), non-liquid assets (like business interests), and qualitative issues (identifying common or reconciling conflicting priorities and beliefs). Those qualitative issues require the financial planner to get to know the client on a very personal level and understand the many complex and often
subtle forces at work in family dynamics.

Here’s an example of what can occur: A single, seriously ill client’s only child is suddenly diagnosed at age 23 with a serious mental health condition that prevents her from consistently making rational decisions. The estate plan had heretofore specified that at the client’s death, all proceeds of the estate be distributed to the client’s daughter. An assessment of the daughters’ diagnosis, severity of illness and prognosis, along with adequate trust documents was needed to create an effective estate plan. There is no box in the spreadsheet for this kind of circumstance.

A higher value advisor will also provide personal recommendations that have nothing to do with financial products; for example, “You could take that $$$ vacation without jeopardizing your retirement.”

But the data is important, too. Higher value advisors will work from actual data, not estimates. They will also take into account investment and tax issues and even develop highly specific analyses (for example, Monte Carlo analysis) to determine recommendations based on those detailed financial data as well as your life circumstances. The result should be a unique recommendation, not one easily applied to another client’s situation.

Where to Begin
The best place to start is by finding out everything you can about the planner’s background, credentials, and the philosophy and practical processes that form the backbone of their practice. How long have they been in business? What is their professional background? How are they compensated (commissions, or fees, or both)? How do they develop their recommendations? Reputable planners will welcome those questions and be transparent in all their answers. Also, ask for a list of clients who have been with them for two years or more, and whose circumstances are similar to your own.

Finally, at MCS Financial Advisors we believe that three things are of paramount importance: independence, objectivity, and transparency. These three criteria are the best guide in selecting a financial advisor to work with.