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Financial Planning

Author: Rachel Gelb
Category: Finance

Why Financial Planning?

How you manage your money can determine the quality of your life. By having a financial plan, you can document and keep track of financial income and outflow. A financial plan should help you live comfortably within your means and enable you to plan for future growth. Just as it will help you pay for certain unexpected emergencies, the plan also should help you save for a comfortable retirement, or that dream vacation.

While a financial plan need not be a detailed accounting of every penny earned and spent by a household, it should serve as a guide. The plan should outline your immediate and long-term goal, how much your household earns or expects to earn over a certain period, and how this money will be spent. The plan should be flexible, but it also should be firm when dealing with the essential day-to-day costs of housing, food, and health expenses.

What Is A Financial Planner?

Under existing federal law (the Investment Advisors Act of 1940), anyone who offers to furnish for compensation, advice on the purchase and sale of securities is considered an investment adviser and is required to register with the Securities and Exchange Commission (SEC).

Some states also have adopted legislation requiring investment advisers to be licensed on the state level, and in some cases, to meet certain testing requirements.

Financial planners, generally, have varied backgrounds and may hold a variety of credentialsdegrees and licenses attesting to their education and expertise. For example:

  • CFPCertified Financial Planner. The International Board of Standards and Practices for Certified Financial Planners, Inc. accredits qualified colleges and universities to teach and test students to qualify for CFP certification. The CFP course, which usually takes from two to three academic years to complete, consists of six sections covering the following subjects: introduction to financial planning, risk management (insurance), investments, tax planning and management, retirement planning and employee benefits, and estate planning. A single comprehensive examination is given after completion of all required courses of study. In addition to the examination, candidates for certification must meet experience requirements in financial planning related work, which vary according to educational background. CFP licensees are also subject to continuing education requirements to maintain their certification.
  • ChFCChartered Financial Consultant. This program, an outgrowth of the Chartered Life Underwriter course for insurance agents given by the American College in Bryn Mawr, PA, is a correspondence program with eight required courses and two electives. Graduates must have three years of qualifying business experience and meet ethical standards.
  • MSFSMaster of Science in Financial Services. Granted by the American College cited above, this degree is awarded to those who complete graduate level courses in financial planning. Degree requirements include thirteen courses and a research paper.
  • MBAMasters Degree in Business Administration. An MBA can be achieved at the graduate level in colleges and universities. Many schools offer courses specializing in financial planning or family financial planning.
  • Registry of Financial Planning Practitioners. Sponsored by the International Association for Financial Planning, registry members must have three years of fulltime practice as a planner, and have either a CFP, ChFC, CPA, law or business degree. They also are required to pass an examination and meet certain other requirements.


Financial planners who are admitted to the Registry of Financial Planning Practitioners, or who hold the designations CFP or ChFC, or who are members of the National Association of Personal Financial Advisers have codes on ethics, honesty and conflicts of interests which they are obligated to uphold. Violations of these standards may result in the financial planner losing his or her membership in the association, and/or their designation.

Choosing A Financial Planner

A good financial planner should give you objective, reliable advice to help you develop a budget and investment strategy tailored to your individual needs.

Your search for a financial planner might begin with a survey of friends, relatives and colleagues who have had satisfactory dealings with their own investment advisers over a period of several years. Keep in mind, however, the fact that a planner who has worked successfully for another person may not necessarily have expertise in the financial areas in which you have a need.

Also ask for recommendations from your contacts in the financial community: your banker, broker or accountant.

Organizations that accredit financial planners should be able to provide the names of several planners in your geographical area. Look in your telephone book for organization listings.

Once you have the names of several prospects, you should check with:

  • Your state securities division. A background check can reveal any noncompliance with state and federal laws.
  • The SEC. Your planner should be registered with the SEC or registered under state laws dealing with investment advisers.
  • The BBB. Ask for a reliability report on the planner.


Your next step is to schedule interviews with the prospects. There is usually no charge for these exploratory meetings, but ask about fees first. Then ask the following questions:

  • What is your professional background? Look for a strong track record of education and job experience covering a broad spectrum of financial planning needs. Ask whether the planner also takes advantage of continuing education and training.
  • How long have you been a financial planner? Look for three or more years of experience as a financial planner and several more years of prior experience as a broker, insurance agent, accountant or lawyer.
  • How long have you been in the community? You should choose a planner who you either know personally or can check out through reliable references.
  • Will you provide references? Get the names of three or more clients whom the planner has counseled for at least two years. Ask them about their level of satisfaction, their investment returns, and their intentions of staying with the financial planner.

Avoid planners who pressure you to rely on the word of one or two new clients. These shortterm clients may be victims (witting or unwitting) of a Ponzi scheme, in which early investors are paid handsomely in order to lure new investors, who end up losing most or all of their money when the scheme collapses.

  • May I see examples of plans and monitoring reports you have drawn up for other investors? Pay particular attention to the frequency and quality of the monitoring reports, since these updates will be vital to reviewing and recharting your financial objectives.
  • Will l be dealing with you or with an associate? If your planner will be turning over all or most of the daytoday work on your financial plan to an associate, take the time to check out that individual as well.
  • What professional/trade organizations do you belong to? Membership in an industry group may indicate the planner has met certain standards and requirements. Ask for an explanation of any title used by the planner, and about the requirements for use of the title and membership in, or certification by, the organization. Call the organization to verify what you are told. But, remember that neither membership in an organization, nor initials after a name, guarantee competence or integrity. Regardless of an individual's title, your best approach is to apply your own stringent standards to the selection of a financial planner.
  • What specific experience do you have in the areas that concern me? Some planners specialize in one or more areas of financial planning, or in a certain type of client. In such a case, determine whether an area of specialty matches your goals. Also, ask whether the planner refers clients to another source of assistance, if the need arises for services outside his or her areas of expertise.

Fee Determinants

Financial planners are categorized by the manner in which they charge their clients.

  • Feeonly. These planners charge either an annual fee based on assets and investment activity, or an hourly fee of $50 to $200 or more. Basically, they offer a financial plan and then refer clients to others who sell financial products such as stocks or mutual funds. Payment is required whether or not you choose to implement the suggested plan. The claimed advantage to the client: the planner who does nothing more than give advice is not burdened by the potential conflicts of interest related to commissions earned on the sale of particular investment products.
  • Commissiononly. Some planners charge no fee, but do earn a commission on the investment products they sell. The claimed advantage: the customer would have to pay a commission no matter where the product was purchased, and he or she benefits from the convenience of "onestop" shopping by buying the investment products sold by the planner.
  • Fee/Commission. Some planners charge a fee for the financial plan and a commission for the sale of products. The claimed advantage: the fee usually is lower than that charged by feeonly planners.

It is up to you to determine whether a planner is offering sound financial advice or is simply trying to earn a commission by selling a particular product. When you interview prospective planners, ask how they expect to be compensated. If the planner earns a commission, ask whether he or she offers a complete range of investments or sells only a specific type of product.

Similarly, ask whether the planner offers investments from one specific company or from many providers. The answers are your clues to whether the "planner" is acting in your best interest or is primarily a salesperson pushing a particular product.

Finally, ask for an estimate of the planner's bill before you commit yourself.

Service Basics

A reliable financial planner is one who is truly interested in you and your family's future. In order to determine your needs, and provide the best service, the planner should ask you these basic questions, among others:

  • Do you intend to stay with your job?
  • Is your spouse going to continue to work?
  • Do you like your home or want a larger one (or perhaps a vacation home)?
  • Do you have anyone who may become dependent on you in the future?
  • Do you intend to put your children through college?


No matter what kind of fee arrangement your planner uses, if you want comprehensive financial planning assistance, you should expect to receive the following service:

  • A clearly written financial plan, including: a balance sheet of assets vs. liabilities; a projected cash flow statement for at least on year; and a precise definition of your financial goals and the steps you will need to take to achieve them.
  • A discussion of the amount of risk you are willing to assume in pursuit of your financial goals.
  • Specific suggestions for improving your personal cash management.
  • Projections for shifts in the rate of interest, inflation, and other factors that will affect your plan.
  • Options and alternatives providing a range of investment choices, with a list of the pros and cons of each.
  • A plan for liquidation in the event of an emergency, outlining ways to obtain cash with the least possible cost and disruption.
  • Suggested sources of advice from other professionals. This is particularly important if you do not have a regular accountant, attorney, insurance agent, or stockbroker.
  • A specific schedule for monitoring your financial plan and periodically reviewing its performance and objectives.

Tips To Remember

Be on the alert for the following "red flags" of financial planning fraud and abuse:

  • Determine if a "planner" has a criminal record or a history of securitiesrelated complaints or discipline. Ask your local BBB for a reliability report and contact your state securities agency for additional information.
  • Be on guard for possible Ponzi schemes, the houseofcards swindles in which a few initial investors are paid interest out of the proceeds of later investors, who end up with nothing when the bubble bursts and the promoter pockets most or all of the remaining money. Ponzi schemes masquerade as tax shelters, precious metals, commodities, hightech stocks, and other new investment vehicles. Avoid financial planners who urge you to put your money in anything with "guaranteed" rates of shortterm interest far above prevailing market rates. This norisk promise is the number one sign of a possible Ponzi ripoff.
  • Avoid financial planners who give you few or no alternatives in your investment plan. Regard any such pressure as a warning that may be signaling the planner's intention to steer you into a fraudulent scheme. This also may indicate the "planner" is primarily a salesperson of a specific product and is more interested in the commission than in your financial wellbeing.
  • Be cautious of financial planners without a staff. Be wary of those whose office is a post office or whose office staff is nothing more than a telephone answering service. It is easy for a "footloose" planner to pick up and move quickly, leaving behind a trail of bad advice and failed, or even fraudulent investments. Visit your potential financial planner's office. Make sure the planner has established ties with other reputable professionals, particularly lawyers and accountants. No one financial planner singlehandedly can master the myriad dimensions of investment, real estate, taxes, pensions, and tax laws.

About the Author: Rachel Gelb is Communications and Marketing Manager for BBB serving Eastern Massachusetts, Maine, Rhode Island and Vermont. Find Rachel on Google +.

Questions and Comments

Comment Submitted 4/1/2014

The information shared here was very concise and informative. The authur told how to save and invest itbut. also taught us about financial scams and how to avoid them.

Question Submitted 12/6/2015

how do you verify the genuity of a certified financial planner?

BBB's Answer:

This article provides some very good information to address your question:

Question Submitted 3/3/2016

Can you tell me if the law might be different in North Carolina. I met with a fee-only CFP and following the recommendations of this article I requested references. The CFP answered that he was not allowed to give references. Where can I find out if this is a true statement in North Carolina? Thank you,

BBB's Answer:

This site may assist you:

Comment Submitted 1/6/2017

Very helpful tips
Views expressed on this page are those of the individual author and do not necessarily reflect the views of Better Business Bureau.

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