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Your Bank > Education and Advice > CNB University

Choosing a Financial Planner

James P. Terwilliger
James P. Terwilliger, PhD, CFP® is Senior Vice President - Group Manager, Financial Planning Strategies and can be reached at JTerwilliger@CNBank.com or (585) 419-0670 x50630.

Paying too much in income taxes? Uncertain of what investments are best for you? Looking for a comprehensive financial plan? Professional Financial Planner to the rescue. But, wait. We've all heard stories about people who have been burned by unscrupulous financial planners. How can you tell the planning heroes from the villains?

Since virtually anyone can call him- or herself a financial planner, choosing the right planner may seem like a shot in the dark. However, spending some time deciding what you really want out of a financial planner should shed some light on the decision-making process.

The place to start is by checking a prospective planner's training and experience. Is the person someone with a professional background such as an attorney, accountant, trust officer, or life insurance underwriter? These generally are safe choices.

Is the planner qualified to use such designations as CFP® (CERTIFIED FINANCIAL PLANNER™) or ChFC (Chartered Financial Consultant) following his or her name? CFP® practitioners must have at least three years of planning experience and complete the CFP® Board of Standards' six-course educational program. ChFCs have completed the American College's program in financial planning.

Other reputable financial planners may belong to the International Association for Financial Planning Registry. These planners must meet educational and background requirements set by the association and pass an examination. Still others may have a university degree in financial planning.

Looking at a planner's background, education, and professional designations may weed out the less desirable planners. But it will not guarantee excellence or determine whether the person is the right planner for you. The next thing for you to do is to check the person's experience and performance record. Have any of your friends or associates used this planner? Is his or her reputation one of fiscal responsibility and integrity? What does the planner know about estates and trusts? Is he or she knowledgeable about real estate and tax-shelter arrangements? Review the planner's performance. Ask for names and telephone numbers of clients. Talk to them. Find out if they are satisfied with the services they received. Because it may take several years to tell if an investment has paid off, contact the people who used the planner as long ago as possible. Generally, what results have been realized from financial plans this person has devised for other individuals in your basic situation? Once you've pared your list down to several reputable planners, it's time to check out costs. How will the planner charge you for his or her services? Financial planners charge for their services in one of three ways: fee only, commission only, or fee plus commission. Each type of compensation method has its advantages and disadvantages. Fee-only planners charge either an hourly rate or a flat fee for their advice and take no commissions on the financial products you purchase to carry out this advice. Most fee-only planners are registered or certified. Without the constant pressure to sell financial products, they can devote more time to devising a client's plan and may be less likely than commission-only planners to recommend an investment as the solution to every financial problem. On the flip side, fee-only planners are relatively few in number, tend to be the most expensive, and because they don't sell financial products, may not provide a client with concrete guidance on how to carry out the financial plan.

Commission-only planners charge nothing for devising your financial plan. Rather, they depend on commissions from financial products they sell you to cover the cost of producing the plan. The caveat here, of course, is that the planner may recommend certain financial products simply to get a higher commission, not necessarily because they are the best investment for you. Fee-plus-commission planners charge a fee to devise a financial plan and then charge commissions on the financial products purchased from them to carry out the plan. This category basically combines the good and bad of the other two, with some of the fee-only advantages canceling out the commission-only disadvantages and vice versa. For instance, once the fee-plus commission planner has put together your plan, he or she will recommend specific investments to purchase. You can buy these investments directly from the planner or buy them elsewhere. Many financial planners are fee-plus-commission, and their services appeal to the greatest number of people.

Let's suppose, you've now narrowed your list down to just a couple of good prospects. Go and talk with them. Ask up front how much your financial plan might cost and what additional charges there will be to carry it out. If the planner sells financial products for a commission, ask him or her to disclose his or her "take" on each investment sold. And ask if the planner's policy is to offer alternative ways to carry out plan objectives. A financial planner should help you review your total financial picture and determine your goals and then give you guidance in meeting those goals. But, ultimately, you should make the investment decisions with a full understanding of all alternatives.

Your search for a financial planner probably will not produce a super hero who can step in and solve your every financial concern. If you take your time and do a little digging, though, you will find a professional financial planner who is right for you. Start with CNB's James Terwilliger, VP, CERTIFIED FINANCIAL PLANNER™, 585-419-0670 ext 50630 or email jterwilliger@cnbank.com.