It matters how you pay your financial planner
About the RFP designation

Good advice is tailored to your personal, special needs

Michael Kane
Vancouver Sun

Friday, December 02, 2005

In a continuing series on consumer decisions, Michael Kane looks at how to find a financial planner.

The financial services industry offers more than 25 professional designations to accommodate different skill sets across the rapidly merging brokerage, banking, insurance and trust sectors—yet it seems that everyone who comes into contact with you and your money calls themselves a financial adviser. Holding out the promise of comprehensive financial advice is an effective marketing strategy for many who are primarily concerned with selling financial products.

What does a planner do?

While an insurance salesman might see an insurance solution to every financial problem and an accountant might display a bias toward tax planning, a financial planner focuses on all the financial and non-financial factors that impact a person’s life.

Good advice is tailored to your needs and takes into consideration all the financial disciplines, including budgeting and saving, taxes, investments, insurance, education savings, retirement planning, dealing with financial emergencies, handling an inheritance, wills and estate planning, and coping with any special needs.

Planners use a step-by-step process to figure out where you are today, where you are going, and what you need to do to get where you want to be. It is a far more thorough process than the typical “know your client” form completed by mutual fund salespeople and brokers.

Designations

The primary standard for a financial planner is the globally recognized CFP or certified financial planner designation promoted by the Financial Planning Standards Council at www.cfp-ca.org (toll-free 1-800-305-9886).

The gold standard in Canada is the RFP or registered financial planner designation administered by the Institute of Advanced Financial Planners at www.iafp.ca (604-943-4217 or toll-free 1-888-298-3292).

Both websites offer lists of financial planners in your area.

Good financial planning advice may be had from other financial professionals, including many bankers who use their industry’s PFP or personal financial planner designation, but the best of them either have, or are working toward, their CFP or RFP.

Questions to ask

Once you have established that you are dealing with a professional financial planner, 10 key questions are:

What are the planner’s areas of expertise?
Does the planner have a criteria for new clients, such as an income or asset level?
Will you be dealing primarily with the planner, or with an assistant?
How is the planner compensated and what is an estimate of fees for your situation?
Does the planner belong to a professional organization which sets ethical standards and requires ongoing training?
What documentation can you expect and how many times will you meet in person?
Does the planner sell investments and other financial products?
Is the planner restricted to selling one company’s line of products?
Are you free to implement the planner’s recommendations elsewhere if you wish?
Is the planner willing to provide you with references?

Fees and commissions

Insist that the planner disclose in writing how he or she will be paid for their services.

Fee-only planners either charge an hourly rate or a fee based on a percentage of assets under management. Fee-only planners do not accept commissions from the investment or insurance companies used to implement your financial plan.
Fee-for-service planners typically charge a percentage of assets under management but may also collect commissions from the product companies they use.
Fee and commission planners may charge a combination of fees and receive commissions derived from the sale of financial products.
Commission-only planners are compensated solely by commissions on the sale of financial products.

Shop around

Finding someone you can trust is vitally important. A good approach is to interview a few qualified individuals over the telephone.

Avoid common mistakes

Financial planning only works if you are diligent about your role in the process. The Financial Planning Standards Council cites 10 common mistakes consumers make when seeking professional financial planning advice:

Confuse financial planning with investing.
Neglect to evaluate their financial plan periodically.
Neglect to set measurable financial goals.
Think financial planning is the same as retirement planning.
Expect unrealistic returns on investments.
Don’t understand how advisers are compensated.
Are looking for a quick financial fix instead of a long-term strategy.
Don’t understand that good professional planning advice is largely dependent on good information from clients.
Believe financial planning is primarily tax planning.
Think they’ll lose control over their decisions if they use a planner.