How to find a CFP

The finance industry is complex. Sure, investments, tax planning, and portfolio structure are complex, but we’re talking about the industry itself. Did you know anyone can call themselves a financial planner? That’s right. The finance industry is highly regulated in some respects, but not in others. While earning licenses to legally charge a fee for financial services requires testing, ongoing education, and regulation, hosting a website that claims you’re a financial professional generally requires little more than a domain name.  

Since “financial professional” is a very general term, let’s first discuss the two main segments of the finance industry – brokerage firms and Registered Investment Advisors (RIAs). Each of these parts of the finance industry are regulated by different bodies. This is important because different financial professionals may follow different rules or be exempt from others.  

First, brokerage firms, also known as broker-dealers, may be large or small firms that offer services like stock trading, mutual funds, annuities, financial planning, etc. Brokerage firms may be discount, online trading platforms or they may be more full-service firms. Brokerage firms typically have arrangements with various investment companies, such as a mutual fund company or annuity provider. These agreements are called “selling agreements.” Before the advisors of a brokerage firm can offer or recommend a certain investment product, the brokerage firm itself must approve the product to be offered to clients. Advisors that recommend financial products that aren’t pre-approved by their brokerage firm can find themselves in a great deal of trouble.   

When a mutual fund company wants to offer its products to a brokerage firm’s advisors, it generally establishes a selling agreement first. However, this process may also involve something called “revenue sharing.” Revenue sharing arrangements are when a company, such a mutual fund company, offers to share part of it’s revenue with the brokerage firm. In turn, the brokerage firm makes more money by receiving this additional revenue directly from the fund company. As you can see, a potential conflict of interest exists in this situation. A brokerage firm might be incentivized to approve the sale of a product if it means they’ll make more money. The brokerage firm could earn revenue sharing dollars directly from the mutual fund company, plus revenue from the fee or commission you pay directly as a customer of the brokerage firm. It’s a bit like your doctor charging you for an office visit, plus earning money directly from a pharmaceutical company for prescribing your medication.  

Revenue sharing isn’t illegal. It’s legal as long as it’s disclosed. Some brokerage firms easily provide links at the bottom of their websites to find this type of information, while others make it more difficult to find. Try searching online for a popular brokerage firm and add the words, “revenue sharing.” If you decide to work with a brokerage firm and your advisor recommends a financial product that’s listed on the revenue sharing disclosure, ask your advisor about it.  

Some brokerage firms also have what are known as “proprietary products.” These types of products are produced by the brokerage firm, or an affiliate, and then sold to clients. In our opinion, this represents a major conflict of interest. It’s a bit like asking your doctor for a prescription and the doctor recommends a medication he developed on his own. It’s possible that a proprietary product happens to be the best for you out of all possible products in the marketplace, but the conflict itself makes many people stay away from proprietary products. If you’re paying someone for unbiased advice, you want them to recommend what’s truly in your best interest.  

Brokerage firms are typically regulated by an organization called FINRA (Financial Industry Regulatory Authority). FINRA is a self-regulatory organization within the Federal Securities and Exchange Commission (SEC). Thanks to FINRA, you can research financial professionals for free online. Just visit https://brokercheck.finra.org and enter a financial professional’s name. If they’re licensed as a financial professional and belong to a brokerage firm, they will have a FINRA profile on this Broker Check website. Within the site, you can see how long an advisor has been in practice, what licenses they have and if they’ve ever had any consumer complaints or regulatory issues.  

The other reason it’s important to know about FINRA’s Broker Check website is to determine if an advisor is affiliated with a brokerage firm in the first place. If you’re like most people, it may be hard to know the difference between a brokerage firm and an RIA. If their profile says, “broker,” you know they work for a brokerage firm. Then you can look up their firm, revenue sharing information, etc.   

The second segment of the finance industry is Registered Investment Advisors (RIAs). RIAs may be small or large firms. RIAs offer similar services as brokerage firms, such as investments, tax planning, portfolio construction, etc. However, RIAs generally don’t have selling agreements. Instead, RIAs typically recommend third-party products in the same way your doctor may recommend the medication of a third-party pharmaceutical company.  

Some RIAs are known as fee-only. Fee-only RIAs pride themselves on only receiving compensation through transparent advisory fees, such as flat or percentage-based fees. Fee-only means an RIA does not receive any compensation from the investments they recommend. You’ll typically know if an RIA is fee-only because they’ll wear the term as a badge of honor on their website and marketing materials.  

It’s possible you may encounter the term “fee-based” as you speak with financial professionals. This can be a confusing term, as it’s not the same as fee-only. Fee-based means a professional may commonly charge advisory fees for his or her services. However, whether a brokerage firm or RIA, an advisor may also receive other forms of compensation, such as commissions for selling insurance. If you hear the term fee-based, you’ll want to clarify if a professional receives any other form of compensation, even if they also receive advisory fee revenue.

RIAs and advisors that work within RIAs are typically regulated by the Federal Securities and Exchange Commission. If you want to check the background of an RIA advisor, visit https://adviserinfo.sec.gov. Like the Broker Check website, you can find similar information on the SEC’s website. This includes how long they’ve been in practice, their licenses, and possible regulatory history.  

While differences exist between brokerage firms and RIAs, good, ethical financial professionals can be found in both channels. An advisor may work on commission and sell proprietary products, but that doesn’t mean the person is a bad advisor. Some people don’t mind at all that their advisor earns a commission or sells products manufactured by their own firm. Others don’t like knowing these potential conflicts of interest exist. If you’re going to invest your hard-earned dollars with a professional, you owe it to yourself to ask difficult questions and understand the nature of relationships between you, your advisor, and your advisor’s firm.  

While the public regulatory websites we cited may help research an advisor, they don’t cover information such as revenue sharing arrangements, insurance commissions, or fee-only vs. fee-based. Therefore, below are questions worth asking as you speak with financial professionals:  

• Do you or anyone at your firm accept commissions of any kind?  
• Do you have an investment minimum?  
• Does your firm accept revenue sharing dollars? 
• Are you regulated by FINRA? 
• Do you have your CFP® marks?  

The last question regarding the CFP® is an important one. If someone has a finance degree and regulatory licenses to operate as a financial professional, they’re indeed a financial professional. However, only those professionals who have undergone additional training and testing to become board-Certified Financial Planners can use the marks of the CFP®. The CFP® exam typically requires 250-300 hours of studying. Once a professional has earned the CFP® marks, they must take 30 hours of continuing education credits every two years. If you decide to work with a financial planner who has the letters CFP® behind their name, you know you’re working with someone who has proven to have the knowledge required of the CFP® program.  

Overall, working with a CFP® means you’ll be working with someone that may be able to help you through myriad financial decisions. These may include:  

• Tax planning  
• Investment management  
• Estate planning 
• Insurance planning 
• Benefits planning  
• Philanthropic gifting  
• Education planning  
• Overall financial planning  

While the CFP® marks reign supreme in the world of financial planners, you may also find other credentials behind the names of financial professionals. Some credentials are well-respected and difficult to achieve, such as the CFA (Chartered Financial Analyst). There are plenty of great credentials out there for financial professionals, but the CFP® and CFA two of the most respected.  

Working with a professional can help you unlock strategies and opportunities you may not know exist. A professional can also help you through difficult economic times to make rational decisions instead of emotional ones. Lastly, a professional can free up significant time, from complex paperwork, to investment research, to analyzing tax information before making trades. If you haven’t worked with a CFP® before or haven’t found the right one, complete the form here to be connected with a CFP®. 

The last consideration when picking a financial planner is their value for their fee. Unlike a commodity such as gasoline where you can easily compare quality and price, financial services can be very broad and complex. This makes the value for a financial planner both hard to quantify and hard to compare. Some firms have robust in-house services and technical experts, while others may be smaller with limited resources. By first understanding different services and then asking more in-depth questions, you’ll be able to make a more informed decision when hiring a professional. There are generally three service categories that financial planners fall into:  

• Project-based planning  
• Investment management  
• Comprehensive wealth management & planning  

Let’s say you want to manage your own investments long-term, but you recently received an inheritance. You want to ensure you don’t make any mistakes or miss out on tax planning opportunities due to windows of time that may close. This is when you might prefer working with a financial planner on a project-basis for a flat fee. Your engagement with the CFP® will have a specific start date and end date, along with the specific services he or she will provide. You likely won’t be able to call and ask questions a year after the project is completed unless you start a new engagement. It’s a bit like working with an attorney.  

As with attorneys, you may pay this CFP® an hourly fee or a flat fee. Flat fees are often based on an assumed number of hours the CFP® will require to complete the project. Hourly rates for CFP® normally range from $150 to $400 per hour. Some highly technical CFP® professionals may charge more. If you’re wondering if the fee is worthwhile, compare that to the cost of making a mistake that can’t be undone.  

Investment Management 

If you’re looking for more of an ongoing relationship with a financial planner, particularly with managing your investments, you’ll need to look further than their firm’s brochure. For example, if you interview two different professionals, both with the same years of experience, credentials, and fee schedules, how can you tell who will provide more value for the fee? Fees, credentials, and experience are important, but they’re simple points of information to discover. You need more to understand total value. Below are common investment management services offered by financial planners:  

• Consolidated performance reporting 
• Rebalancing  
• Asset allocation 
• Risk management 
• Research  
• Security selection  

While these headings are good to know, how deep will your financial professional go within each one? Below are clarifying questions to better understand total value.  

• Consolidated performance reporting 
• Can you also manage or report on outside accounts such as my 401(k) or annuity?  
• Do you have a smartphone app or portal to view performance online?  
• Rebalancing  
• Explain your rebalancing methodology. What triggers action?  
• How closely do you watch for wash sales or capital gains when rebalancing?  
• Asset allocation 
• What asset classes do you normally recommend? 
• Which asset classes do you exclude and why?  
• How often do you update your recommended asset allocation mix?  
• Do you practice asset placement (specific investments in specific accounts based on tax treatment)?  
• Risk management  
• Explain your methodology for managing risk in a portfolio.  
• Research  
• Do you have an in-house research department?  
• Do you conduct research on foreign markets?  
• Security selection 
• How do you pick between stocks, bonds, mutual funds, ETFs, etc.?  
• Do you offer private investments, such as private equity and private debt?  

Even if you don’t understand some of the questions above, you’ll easily be able to tell how shallow or deep a professional may go on these topics. If they struggle to answer the question, you may have put them into a defensive position because they know it’s an area where they’re firm isn’t as competitive as others. You’re vetting financial planners and their firms to determine both depth and breadth to arrive at “total value.” It’s not just about how many services they provide on a list. Checking 50 boxes may look impressive, but if the services are shallow, they may provide little value. Search for the greatest value relative to the advisory fee.  

Comprehensive Wealth Management 

If you’re looking for both ongoing investment management and comprehensive planning, such as tax planning and estate planning, you’ll want to ask similar questions. The best way to see beyond the headlines on a firm’s brochure is to take the conversation a layer deeper. The term “wealth management” isn’t standardized, which means a firm may or may not be comprehensive in nature when using this term. However, more often than not, firms using this term include more services than strictly investment management. Below is a copy of the general list of services financial planners offer, but with an added layer of value-probing questions:  

• Tax planning  
• Do you have in-house CPAs?  
• Do you review your clients tax returns?  
• Can you pay my income taxes, such as quarterly estimates, directly from my account?  
• Do you provide income tax projections?  
• Can you provide an example of a Roth IRA conversion analysis?  
• Can you provide copies of my tax documents directly to my accountant?  
• Investment management (see above)  
• Estate planning 
• Do you have in-house estate attorneys?  
• Will you review my estate documents?  
• Insurance planning 
• Do you normally review my insurance policies, such as group disability or homeowners?  
• Do you normally request in-force illustrations for life insurance?  
• Benefits planning  
• Will you make a recommendation between a high deductible health plan vs. a PPO?  
• What do you provide for your clients with employer stock options and similar awards?  
• Philanthropic gifting  
• Describe your philanthropic planning services.  
• Education planning  
• Can you provide a sample education planning analysis?  
• Do you manage 529 accounts? If so, do you also handle distributions?  
• Overall financial planning  
• Can you provide at least a basic financial plan so I can see it firsthand?  
• Explain your philosophy on financial planning.  
• How often do you update your clients’ financial plans?  
• Do have an interactive planning tool I can use on my own?  

Asking deeper questions will allow you to better understand what happens behind the scenes at a firm you haven’t hired yet. Even if your gut instincts are telling you a CFP® is a trustworthy person and you should hire them, these questions should be answered. Trust is absolutely important when picking a professional. These questions will help you understand total value.  

If you’re still unsure about the value of working with a professional, ask about the terms of the engagement agreement. Most advisory firms will have an engagement agreement that outlines the terms of the relationship, what services will be provided, and how each party can end the agreement. If the agreement allows you to end the relationship at any time, you’ll have the ability to test the waters with a CFP® without committing to a long-term relationship.  

For example, let’s assume you decide it’s not worth the fee after a year or two and decide to end the engagement. If your investments are held with a third-party custodian (Schwab, Fidelity, etc.), you can generally keep your assets in place without the need to transfer them elsewhere. In other words, it’s like giving an extra set of keys to your advisor to drive your car. If you decide you don’t want the advisor to access your car any longer (end the engagement), you take the keys back, but keep your car intact. Many engagement agreements allow for either party to terminate the agreement at any time with written notice, which makes it easy to take back the keys.  

Working with a professional can help you unlock strategies and opportunities you may not know exist. A professional can also help you through difficult economic times to make rational decisions instead of emotional ones. Lastly, a professional can free up significant time, from complex paperwork, to investment research, to analyzing tax information before making trades. If you haven’t worked with a CFP® before or haven’t found the right one, complete the form here to be connected with a CFP®.  

 

If you want help finding an independent financial planner, complete the form here.