Selecting a Financial Planner

A reader asked a question regarding how to select a financial planner. I’ve been humming and hawing trying to figure out the best advice to provide on how to go about doing this. I decided to do a Google search on that very question. There were a number of things I noticed:

1. There are lots of “checklists” out there on how to pick a financial advisor.

2. Many of those checklists are written by financial advisors.

3. Just as many of those checklists are written by financial advisor association groups. (Who basically steer you to one of their members)

4. I couldn’t find any truly good lists/articles (mind you I only looked for about 10 minutes, but it was all the same stuff over and over).

There were some common themes such as trustworthiness, fee structures, designations, references, etc. Yes those are important, but how would you know what’s what in the first place? The other major theme is that they all assume that you should just download all your financial responsibility to an advisor.

Here is the original question:

I’m in young family mode, and have always known I’m leaving money on the table by not dedicating myself to my finances more. (tax planning, investments, retirement and now estate planning) I have RRSPs but no non-registered accounts. I, like many I suspect, am good (enough) at my day job, but don’t have the energy (nor do I really enjoy) making sure my finances, insurance, budget etc. are all aligned with my needs, risk appetite and long term goals….
All this is a long way of asking: How would you recommend arming oneself with enough info to do a good job of selecting a financial advisor to work with? I’ve crossed paths with some professionals in the past, where I’ve ended up being in the “Is this what I’m paying you for? I can do this myself” mentality. (Finding mistakes on my professionally done tax return, for example). I suspect I know the answer to this already but how would you recommend going about this? Referrals seem to work best, but for whatever reason, my acquaintances seem to be in the same boat. (Or don’t want to pay anyone for assistance).

My final answer is probably not what the reader wants to hear (I think they are knowingly in denial, however), but I think it is the best advice I can give:

You simply cannot download the responsibility of your financial affairs to anyone else completely. Just as the other aspects of your life generally require work and effort on your part (raising children, studying, working, exercising, dieting, time management, chores, relationships, etc.) so do your finances.

That might mean really taking some serious time to interview a number of advisors on your own, developing a collaborative relationship with one of them (by collaborative, I mean you are actively involved with the advisor and use them more as a resource to help present you with options such that you are ultimately making the decisions instead of being sold a strategy or product), and also relying on unbiased third party sources of information to keep yourself up to date.

People achieve varying amounts of success (or failure) with their health goals and desires based in large part to how dedicated they are, and how seriously they approach these goals and desires. No pain, no gain unfortunately and the same relationship probably holds true with your finances.

I have some ideas and questions I would like to ask the readers of this blog – so that perhaps we can help out this particular reader and others in the future.

1. Should I actually create a questionnaire or test for investors to take to their financial advisors (or prospective financial advisors) to see how well they score on various aspects of advising/planning/disclosures/etc?
2. Should I offer to call any of his/her prospective advisors on the reader’s behalf and interview them on the phone, and then provide my direct assessment to the reader? (That would require you thinking that I know what I’m talking about though)
3. Any other suggestions or references you guys can point to would be welcomed in the comments section.

Note that I don’t have any experience finding a financial advisor/planner since I AM one (which also means anything written here has to be taken with a grain of salt because I am structurally biased), but perhaps those who feel they have a good relationship with their advisor could chime in as well with their thoughts.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 15 comments
  • CanadianRetiredGuy

    It has been said that no one cares as much about your money as you do. The trouble might be that some folks simply don’t really care enough about their money to work to have the basic understanding necessary.

    I have yet to find a planner. I was too cheap when I had limited assets. When my assets grew I watched (actually didn’t watch) them as they soared during the dot-com bubble and then fell like a stone.

    I read more and more as my assets were now significant. The problem then was finding an advisor who (1) cared about my portfolio as opposed to his business (2) wasn’t trying to have me sell everything and buy what he sold and (3) knew more than I now did.

    I am in the process of writing a Financial Plan for where I am today and will then contact a few of the fee-only planners to have them give me their thoughts. I am sure I have made mistakes — but this is a narrowing process where you are aiming for perfection — but will never get there.

    One thing I keep in mind is that fully 50% of the planners are worse than average and 50% of all investments are worse than average. With a little work one can choose from the pool of better than average advisors and better than average investments aiming for the never to be obtained perfection.

    Perfection is nice, but better than average is acceptable and will out-perform the bottom half every time.

  • Leslie

    Acknowledging what CanadianRetiredGuy says is true, there are also people out there who don’t have a clue and sadly, don’t want one. They just want to have someone look after their money who won’t screw them. There are many excellent and easy to read personal finance books available to help a person create their own financial plan, and the couch potato portfolio featured on Moneysense to execute the investment portion of the plan. As Preet says, you can’t totally abdicate your responsibility for this. So, even if you don’t want to get a clue, you’re going to have to suck it up & make some effort.

  • Canadian Dream

    Mmm, good question. I’ve stuggled in the past with thinking about seeing an advisor. I’ve known a couple of them personally in the past, yet I never seem to get it together enough to go see one.

    Perhaps it’s ego. I think I can do myself and I’m not sure paying someone to tell me to do something will help all that much.

    In the end, I think it comes down to what CanadianRetiredGuy said "No one cares about your money as much as you do". I care, so I don’t want to leave it to someone else. Perhaps some day I will see one for a second opinion, but I don’t think I’m there yet.

    Tim

  • thickenmywallet

    Good answers.

    I would avoid the checklists. People use to come in and interview me off check lists you could find on the internet. It is like going to a job interview with canned questions- both sides know the answers the other side wants to hear and when you do a checklist type of meeting, it stunts personal interaction and a bad advisor/planner could just give you the answers you want to hear rather than digging down and getting to what they can do for you.

    I would suggest asking any professional for 3 references of clients and one of those clients has to have been a client for at least 5 years to get a fair sample size. Anyone can fluke out and have 1-2 great years.

    I put my advisor on annual goals and what I will and will not invest in (no wrap funds, no PPN’s etc.)- it keeps me in line when I ask him about something not on plan and it keeps him focused. Plus, in the litigious environment we live in, once you give direct instructions in writing to a professional, they take notice (this gets back to your point about being responsible for your own financial destiny).

    This may be subject to some debate as well but I deliberately chose a younger advisor- the book isn’t big enough to make him indifferent to your needs. I am in my 30’s so a younger advisor can relate to me more. Don’t get me wrong- my advisor isn’t 19 or something but sometimes finding someone who is approximately in the same life cycle as you helps quite a bit.

    Those are suggestions off the top of my head.

  • Johnn

    I’m in the same boat – starting to take finances seriously and am thinking of getting a financial advisor.

    My intended first step is to take advantage of several of the free review meetings offered to me by my bank, my credit union, my employer, and my wife’s employer. I hope to pick up on some of the lingo, and learn how plans and planners might differ.

    After that, I would prefer to read a good financial planning book or three so I can, as suggested, tap my planner as a resource while still maintaining control and keeping informed.

    I’ve heard the Wealthy Barber is a good place to start. Any other reading recommendations?

    Cheers.

  • Preet

    That’s a good place to start (The Wealthy Barber) – certainly many other Canadians would seem to agree! You could always wait for my financial planning book to be released… but that might be a year from now – I’m sure it won’t take you that long to read the Barber… :)

    I’m a big fan of "Richest Man in Babylon" it can be read in a day, but it hammers home the philosophy of financial planning at it’s very fundamental levels. Author: George S. Clayson, originally published in 1926 I believe…

    If anyone else has some favourites, feel free to chime in…

  • nancy (aka money coach)

    I completely agree — it’s all too easy to divest ourselves of responsibility and figure our f.p. is taking care of it all. I’ve talked to dozens and dozens of people who are generally confused about their investments, and slightly resentful towards their f.p. but too intimidated to bring it up, because they don’t feel like they know the investment world well.
    So, I would say high on the checklist should be, "does this person use everyday language so that I generally really ‘get’ what’s going on with my investments?" or do my eyes glaze over?
    If it’s the former, the likelihood of an informed, empowered and trusting relationship being forged increases exponentially.

  • Johnn

    Preet, I see lots of books by Gordon Pape on the shelf all the time. Is he a worthwhile source to read?

  • Preet

    I agree with a lot of what he writes, but there are some things I disagree with as well. I’m basing this on what I have read on-line, I have never read any of his books.

    With any books that you read, it doesn’t hurt to get other opinions as well. Better to have read the views from different perspectives on the same material I think – eventually you will be able to make up your own mind as to what is best for YOU.

    Sorry I couldn’t provide a more specific answer, but as I have not read any of his books, I am unqualified to really give any other answer… Sorry! :(

  • financial planning

    I completely agree as i’m starting to take finances seriously and am thinking of a proper flanning planning. I would prefer to read a good financial planning book or three so I can, I came to know that the Wealthy Barber is a good place to start. Any other references?..

  • Preet

    I’ve always been a big fan of "The Richest Man in Bablyon" – a quick read and it gives you the philosophy behind financial planning. There are tonnes of books out there, most of which I have not read – so I can’t make any recommendations other than that.

    I’ll be writing one of my own in the next 2 years though… :) I’ll certainly recommend that one when the time comes.

  • Miah Z.

    The word budget has gotten a bum rap. It is basically just a plan. When you budget, you’re spending on paper, on purpose, before the month begins. But many people view a budget as a straight jacket that keeps them constrained. Internet life has a lot of tools at the user’s disposal, like faxless payday loans and a cornucopia of budgeting tools that are easy to get at. Running a budget or getting a payday loan if you need one can be such a pain, but there are faxless payday loans that you can apply for over the internet. There are also a bevy of websites that have a lot of great guidelines for budgeting, tips and tricks that will help anyone run a balanced budget, and make meeting financial goals a piece of cake. Also, a good deal of these sites are set up to especially help out younger people, so those that need the most advice can get it in terms they can understand. Check out some tools I found to help make budgeting easier and find out about faxless payday loans .

  • Miah Z.

    The word budget has gotten a bum rap. It is basically just a plan. When you budget, you’re spending on paper, on purpose, before the month begins. But many people view a budget as a straight jacket that keeps them constrained. Internet life has a lot of tools at the user’s disposal, like faxless payday loans and a cornucopia of budgeting tools that are easy to get at. Running a budget or getting a payday loan if you need one can be such a pain, but there are faxless payday loans that you can apply for over the internet. There are also a bevy of websites that have a lot of great guidelines for budgeting, tips and tricks that will help anyone run a balanced budget, and make meeting financial goals a piece of cake. Also, a good deal of these sites are set up to especially help out younger people, so those that need the most advice can get it in terms they can understand. Check out some tools I found to help make budgeting easier and find out about faxless payday loans .

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