Do you feel like finding someone with the experience you need to make your retirement dreams is daunting? A quick internet search will return hundreds of listings, but it's up to you to figure out who you can trust. Online directories from trusted organizations like the National Association of Professional Financial Advisors will narrow your search to experienced fee-only advisors, but how do you pick the one that's right for you?
This article will help you understand the basics of choosing a financial planner who is highly qualified and will prioritize your interests.
CFP, CPA: What Do These Initials Mean?
A Certified Financial Planner (CFP) is essential to making sure that your financial plan strategy meets your long-term financial goals. The CFP certification process is rigorous; those who earn the designation are considered top-tier advisors. The CFP Board also requires CFPs to follow a code of ethics, strict rules of conduct, and practice standards. CFPs must also be fiduciaries, which means they prioritize their client's goals rather than making recommendations or offering options that benefit the advisor.
Certified Public Accountants (CPAs) will thoroughly understand taxes and how they relate to retirement and estate planning. CPAs are licensed by the state(s) they practice in and have extensive training in accounting, financial reporting, and taxes. CFPs are not required to be CPAs, but working with someone with both certifications gives you a better chance of lowering your tax liability and living the retirement lifestyle you want. If you own a business, CPAs are uniquely qualified to help you navigate the complexities of transitioning from business owner to retiree.
Other helpful certifications, degrees, and designations that you may see on a CFP's website include:
CIMA- Certified Investment Management Analyst
MTAX- Master's Degree in Taxation
RMA- Retirement Management Advisor
PFS- Personal Financial Specialist
Who Employs a Financial Planner?
The short answer is the client. To some extent, that's true, but the longer answer is that advisors earn money in three primary ways. Financial planners sometimes receive compensation from clients and financial product companies. Others receive money from one or the other. It is essential to know how your advisor gets paid as this will shed light on where an advisor's loyalties lie before allowing them to manage your assets.
The 3 Types of Compensation
Commission-based advisors do not directly bill clients for services. Instead, they receive commissions and other compensation from the companies that provide financial products. While many try to prioritize their client's needs, conflicts of interest are common because the advisor has a vested interest in promoting specific products and services.
Fee-based advisors charge clients directly for services and also receive commissions for products and services. A fee-based system has the potential for conflict of interest and costs more than a commission-based fee structure.
Fiduciary fee-only advisors provide the most transparent and unbiased fee structure. They determine fees based on a percent of the value of assets under management. They cannot accept commissions or other rewards from companies that provide the financial products advisors recommend to clients. Even if they are not CFPs, fee-only financial advisors must act as a "fiduciary" and prioritize their client's interests.
The ongoing cost of investment products in your portfolio can eat into your earnings. If your advisor places your assets into funds with expensive underlying expense ratios, it will negatively impact the health of your portfolio. High fees typically occur when working with commission-based or fee-based planners.
What Services Are Included in the Fees?
When looking for comprehensive asset management, understanding what services the financial planner provides before hiring them is in your best interest. An excellent financial planner offers a complete list of services, including:
- Tax planning and tax return preparation
- Retirement planning
- Cash Flow planning
- Estate planning assistance (not to take the place of an Estate Attorney)
- Insurance planning (an independent analysis from someone who does not sell insurance)
- Investment management
The best-case scenario is having all of those services under one roof. If you must go to a different company for one or more essential services, it increases your chances of many unfavorable outcomes such as paying more taxes, missing out on growth opportunities, or creating a significant tax liability for your beneficiaries.
Can Your Financial Planner Handle Life's Curve Balls?
Choose a financial advisor who understands the strategies behind financial planning so that you get what you need. Some advisors use financial planning software programs to create plans for their clients quickly. Like widely available DIY tax and legal form programs, financial planning software meets the minimum requirements and produces results as quickly as possible. They rely on formulaic templates and standardized intake questions that can miss important details of your unique situation.
For the best results and the ability to quickly adjust to unexpected changes, you want an advisor who has extensive knowledge and experience with financial, estate, and tax planning. They can create a more robust retirement plan and provide comprehensive ongoing management.
Can your advisor stick with you throughout your entire retirement?
It's vital for you to receive consistent advice from a financial planner you trust. Choosing an experienced planner is essential, but remember that you don't want someone significantly older than you or a peer who will head into retirement the same time you do. When selecting the best financial advisor for you, be sure it is one who is in it for the long term and who is unlikely to retire in your lifetime.
Bestgate Wealth Advisors is here to help you reduce your tax liability, grow your portfolio, and design the retirement of your dreams. Please reach out here to request a consultation today.