Hiring a Financial Planner

You don’t need a financial planner. Financial planning is a relatively recent profession. Many, and perhaps, most of the people who are wealthy today did not have financial planners. Building wealth comes primarily from making a habit of saving and investing. Having that habit, and no plan, has often made people wealthy. Having a plan, but not the habit, will do little good.

Still, the financial world has become more complex in the last few decades, and many people want to hire a financial planner. Here are some things to think about:

1. Find out what you can about the planner’s background. Financial planning is more of an art than a science. Your individual goals are not the same as the next person’s. Look for someone who’s been in the real world for a while. A planner who left her career as a pilot because of an airline’s bankruptcy may have hard-earned knowledge of how to survive a life crisis. This experience may be more valuable than any set of formal credentials.

2. Honesty is extremely important. If you are inexperienced in financial matters, you will be at an informational disadvantage and therefore be vulnerable to a crooked planner. Get references and check them out. Call the Better Business Bureau. If the planner claims to be licensed, call the licensing authority (probably a state government agency or department) and find out whether or not the person is licensed, and whether or not the person has been disciplined.

3. Find out how the planner will be compensated. A planner who receives commissions or other compensation from companies whose products he or she sells has a potential conflict of interest with you. If there's a sales commission in the picture, the planner may have a motive to sell you something that might not serve your needs. If a planner is a “registered investment adviser,” he or she will have a fiduciary duty to you (which is a legal duty to act in your best interests). But having a legal duty and complying with it are two different things. It’s best for you, especially if you are starting out, to have a planner who takes money only from you, and who charges you a flat fee or an hourly rate. Get an estimate, and a description of the services the planner will provide.

4. Try to learn as much as you can about financial matters before you meet with the planner. The more you know, the better you’ll be able to evaluate the quality of the advice you are getting. (Think of it this way: when you go into a car dealership, you don’t accept the salesperson’s claims at face value; you compare them against what you already know about cars.)

If you’re in your 20’s or 30’s and haven’t saved at least $100,000 of financial assets (i.e., assets not including physical assets like real estate, cars, furniture, etc.), you may have trouble finding a financial planner who’s interested in serving your needs. That’s because you don’t have enough money. If that happens, keep saving. The first stages of the wealth building process tend to be relatively simple anyway because the way to start building wealth is to put away as much of your earnings as possible. This doesn’t require any sophisticated knowledge. It simply requires commitment. At this stage, you shouldn’t invest in anything elaborate—fancy investments are for people who can afford to lose the money they invest.

UFO News: If you're a UFO enthusiast, don't miss the conference in Charleston, W. Va. http://www.wtop.com/?nid=456&sid=1153289.