The University Record, June 19, 2000

Use care in selection of personal financial planner

By Kate Kellogg
Human Resources/Affirmative Action

As employer investment and retirement options multiply, most workers find that managing their personal finances takes more than a few minutes with a calculator.

Many people are shifting some of that responsibility over to financial consultants. Those professionals provide money-saving advice on investments and savings and help clients set reasonable financial goals.

“Whether you want to make the most of your U-M retirement plan or assess your tolerance for risk in investments, you will likely benefit from the advice of a qualified professional,” says Steve Sindlinger, retirement plan manager for the Benefits Office.

“TIAA-CREF and Fidelity consultants provide free, individual counseling on retirement planning to faculty and staff and present financial education programs on campus. This includes advice and guidance on which funds to invest with, balancing your portfolio holdings, estate planning and retirement savings gap analysis. This is a significant change from just a few years ago,” Sindlinger notes, “when you had to find a financial planner who would also charge a fee for services that TIAA-CREF and Fidelity now provide for free.”

For various reasons, some people opt to pay for advice from private sector financial planners. The planner’s job is to help you develop a workable plan that zeros in on personal goals. Below are some tips on finding and consulting a financial planner.

The Plan

Most people want a planner to provide a comprehensive overview of their entire financial situation, including analyses of current finances and long-term objectives. After reviewing your financial circumstances, the planner generally produces a written financial plan. It should include:

  • Your prioritized financial goals.

  • Your net worth.

  • A monthly budget (income and expenses).

  • Your risk assessment—the amount of risk you are willing to take with investments.

  • A specific plan of action that you agree to follow.

    Compensation

    Before you select a planner, you should understand the three different types, classified according to their compensation method:

    Fee-only planners charge either a flat or hourly rate to create a plan. They also may charge a fee of 1–3 percent of the assets they manage.

    Fee and commission planners, sometimes called fee-based planners, charge lower fees than fee-only planners. They supplement the fees with commissions from investment or insurance products they sell.

    Commission-only planners generally charge nothing for advice and receive commissions on the products they sell.

    Keep in mind that any money you save in fees with a commission-only planner may cost you objectivity in investment advice. When an adviser recommends a product that generates a commission, he or she can hardly avoid a conflict of interest.

    Planners’ fees vary, depending on the scope of the plan and the amount of assets they manage. A national survey conducted by the College for Financial Planning found that $500–$600 was the median amount fee-only planners charged for a full comprehensive plan in 1998. The median for an abbreviated plan was $250. Those who charged hourly rates averaged $100 per hour, according to the survey.

    Selecting Your Planner

    The two most important criteria you should consider in your selection are solid credentials and trustworthiness. Anyone, with or without a professional designation, can solicit business as a financial planner. Consult a directory of professional associations, such as the National Association of Personal Financial Advisors or the Institute of Certified Financial Planners (CFP) to find members in your area.

    Professional designations vary in their requirements. For example, a chartered financial analyst—awarded by the Institute of Chartered Financial Analysts—must have a bachelor’s degree, pass three exams and have at least three year’s experience in the field. A certified financial planner—awarded by the CFP Board of Standards—must complete a financial planning education program, pass one comprehensive exam, have related work experience and fulfill a biennial continuing education requirement.

    Most planners register with the Securities and Exchange Commission (SEC) to earn the title of registered investment adviser. The only requirement is payment of a fee to the SEC.

    Consult your lawyer, accountant or other professionals for recommendations on financial planners. Friends and business associates also can be good referral sources.

    Narrow your list of planners to those with the strongest credentials and highest recommendations. Interview your choices by phone. Don’t hesitate to ask tough questions about the planner’s education and experience, fees, services, regulatory compliance and references.

    Make sure the person you are considering is the one who will actually do your financial plan. If someone else will be working on your portfolio, you need to check his or her qualifications as well.

    If the planner charges a commission, ask for the SEC’s Form ADV, which describes the planner’s practices, history, qualifications and potential conflicts of interest. It also discloses any legal or financial troubles the planner may have had. You probably should not entrust your finances to any planner who doesn’t fully answer all questions and provide the disclosure form.

    If you’ve found several promising candidates, meet them in person and assess your comfort level: Do you really trust them, do they answer your questions clearly and thoroughly, and do they ask pertinent questions about your goals? (Most planners don’t charge for this initial interview.)

    To further research the background of financial planners, call the organizations from which they received their designations (see page 10). The SEC would have records of any disciplinary actions brought against planners.

    Once You’re Working with a Planner

  • Always get your planner’s advice in writing.

  • Check financial statements to make sure the planner is following your instructions.

  • Never agree to any investment that you don’t understand.

  • Don’t sign anything you haven’t fully reviewed.

  • Keep educating yourself, so you can tell good financial advice from bad.

    Places to Check

    Institute of Certified Financial Planners, (800) 282-7526, www.fpanet.org; click on Consumer Service icon.

    Society of Financial Service Professionals (formerly the American Society of CLU & ChFC), (800) 392-6900, www.financialpro.org.

    National Association of Personal Financial Advisors, (800) 366-2732, www.napfa.org.

    Securities and Exchange Commission, (202) 942-8088, www.sec.gov.


    Help from TIAA-CREF and Fidelity

    Both TIAA-CREF and Fidelity Investments offer free financial education services and programs to faculty and staff throughout the year. The Benefits Office offers a series of financial education courses at the Human Resource Development facility during the academic year.

    TIAA-CREF provides free, personalized consultation on investment choices and retirement planning by phone and in-person. Faculty and staff can register on-line for TIAA-CREF’s one-on-one counseling sessions and workshops. Go to tiaa-cref.org and choose menu options that lead you to Meetings/One-on-One Counseling. To sign up by phone, call (800) 842-2044. For counseling by phone, call the TIAA-CREF Counseling Center 8 a.m.–11 p.m. EST weekdays, (800) 842-2776.

    Fidelity’s Web site (fidelity.com) offers interactive tools and worksheets that help you refine planning strategies. The tool site includes a growth calculator to help you predict how your investments might grow over time and a retirement plan calculator that estimates the cost of your retirement years. The Tools and Worksheets page is found on the Web at wps.fidelity.com/non-profits/tools/tools.htm. To schedule an individual counseling session or to sign up for U-M workshops, call (800) 642-7131. To consult by phone with a Fidelity retirement specialist, call (800) 343-0860.