Picking a Financial Planner

It used to be that I thought anyone who worked as a professional in the field of money could do financial planning. Not that they don't all know how to budget, plan and track money, but I've learned that there's more to financial planning than that.

I have consulted with, and paid, 3 different accountants in my career (not including my current accountant), in hopes of having them help me achieve my financial goals. It wasn't until I read the book "Rich Dad, Poor Dad" by Robert Kiyosaki, that I started to understand why accountants aren't financial planners. In fact, no single professional is likely to be able to do all my financial tasks for me.

It turns out that there is a wide range of financial planners out there. Quite often you will see the designation "CFP" after their names, which stands for "Certified Financial Planner" (Big surprise!). However, very often someone with this designation is qualified to represent a number of insurance companies and mutual fund companies.

It is very important to understand that CFP's are usually paid a commission up front, and annually by the companies they are affiliated. There's nothing wrong with this, but it's common sense that they are trained and incented by these companies to sell their products.

Once I decided to seek one out, I found that most did not recommend real estate as part of a financial plan. As a result, these planners did not own real estate. This was a shock to me. The basic fact is, recommending investment in real estate does not provide the financial planner with any reward. Therefore, many planners won't recommend anything other than RRSPs and mutual funds.

So, the spectrum ranges from pure "mutual fund salesmen" or "life insurance salesmen" to impartial "non-incented" advisors who charge for their services and are independent of companies.

Of course, most people probably can't afford to use a completely impartial advisor. You could, however, rationalize the fact that such a person could earn you more net worth than their fee by many times. So, it probably is worth it if you pick one that is competent.

I chose to work with someone in the middle, but closer to the impartial side. Firstly, the fund groups available to CFPs are very diverse now. So, in the realm of insurance and mutual fund based investments, they can pick just about any investment strategy and find vehicles in their portfolio that fit.

The important question is, how does a financial planner feel about investments outside their affiliated fund groups? Can they fit that concept into their plans?

Just the fact that a planner understands the importance of multiple streams of income, and the value of leverage (as in mortgaged real estate) is a big indicator. A better indicator is whether or not a planner actually owns investment real estate themselves.

In the model presented by Robert Kiyosaki, there are 3 levels of financial plans for investors. There is the "safe secure" financial plan, which most CFPs are capable of creating for you. Then there is the "rapid growth" financial plan, which a more full-service planner can help with. This level has more aggressive and creative investments. Then there's the "plan to get rich". The latter is hard to find people who can do, and they will charge for their services. I believe it's important to make sure you've got the "safe secure" plan, and if you are interested in speeding up the wealth creation process, then add the "rapid growth" component with the help of a planner.

A lot of people (especially engineers) feel that they should have the math and problem solving skills to set up and manage their own financial plans themselves. Maybe some can, but I don't believe that's really the best use of their time and their acquired skills.

So, to summarize, it is important to shop around for a financial planner who can help you build a "safe secure" financial plan. It should include covering all the bases including having a will, and life insurance. But they should be able to review your personal and business objectives, map out a plan for how to best use your assets, and help you build a team of advisors such as lawyers and accountants.

If you don't hear from your planner at least once a year, I would be worried. It is ultimately your responsibility to monitor who is in charge of your investments, and make changes if you aren't happy with the way your financial plan unfolds.

If you have questions, please feel free to post a comment.

... Scott