Preparing for the Financial Planner

For the past two weeks now, I've known my next step is talking to a financial planner, yet I keep putting this off. It IS something I want to do! -- so why am I putting it off?

I put some more thought in to that today and decided the main reason is probably because I don't think I am prepared. Managing paperwork, and details is just not something my personality type is good with, and so in many ways my life seems rather chaotic. (All the MORE reason for a financial planner to help get it organized, and draw out a PLAN.... I'm good at following step by step plans).

So, today I decided to do a little research and find out what I might need to interview a financial planner, and after reading a few pages (Prepare for the Financial Planner Interview, How To Choose a Financial Planner, 10 Questions To Ask) I decided to gather my best findings and present them here in this post.

Remember, a good financial planner will identify where you are at, find out where you want to be and then draw up a plan of action to get you there.

Financial Goals

The very first step you should take is to sit down and think about what your short-term and long-term financial goals are. A financial planner will have a hard time helping if they can't see where you are at now, and don't know where you want to be. You might come up with a few different ideas, and the financial planner can help determine which are good, and which can be worked in together, but you have to have SOME goal for them to work toward!

For myself, I have one fairly simple goal at the moment: Set up $1,500 in passive income by 2010. I already have about $500 or so set up, and that gives me 3 years to create the rest. I should be able to do much better than that, but once I achieve THAT goal, it's a downhill snowball!

Gather Financial Records

Next, you will need to gather your financial records. You (and the financial planner) will need to determine your current spending habits, assets, and liabilities. You should have a few things ready to take to the first meeting/interview:
*) Rough outline of your monthly budget
*) Estimate of monthly income (sources of present and future) and expenses
*) Recent tax returns
*) Social Security estimates
*) Recent account statements for retirement plans
*) Recent bank and brokerage statements for all accounts
*) List of major assets and estimated market value
*) Recent statement from all open credit card accounts
*) Copy of the latest declarations page from auto, home/renter’s, life, and disability insurance.

Gather a list of prospects

I would recommend asking family and friends if they are using any financial planners (or have in the past) and what they thought of the advice. These are the people who will probably give the most detailed account of their personal experience, although keep in mind they might have limited experience, and it will be highly bias toward their personal feelings as to how helpful they thought the advice was. The next group to ask for prospects would be other financial professionals such as accountants, your bank, etc. I have found that my real estate agent (also an investor) is a great source, since she does a LOT of networking in her position, knows a lot of people, and so should be picking the best of the crop for her personal "team" as well. I do not know if the phone book is a good place, but it is another option.

Preliminary Calls

After you have a few names/numbers, it's time to get a little more information and narrow things down.

Questions to ask:
1) What is your area of specialty? (some answers might be: cash flow, tax, investing, insurance and retirement planning)
2) Do you have any certifications?
Certified Financial Planner (CFP) -- about 55% pass the test on the first try
Personal Finance Specialist (CPA/PFS) -- Certified Public Accountant
Chartered Financial Analyst (CFA) -- investments and wealth management
3) How are you compensated for advice? (salary? fees? commissions? other?)
4) What are your income and investment requirements? (make sure they are in your price range!)
5) Do you have a packet of information you can send me? Does it include your Form ADV? (read about Form ADV here)

Interviews

It's recommended to have at least 3-4 half-hour interviews lined up. These will probably be free, but be sure to ask! Also, make sure you will be meeting the person who will be advising you. :)

Take a checklist of questions for the interview:
1) What investment experience do you have?
2) What is your professional background? Education?
3) What strategies or principals are used to develop your financial plans? (conservative/aggressive)
4) What services do you offer?
5) Will YOU be carrying out the recommendations? or referring me to other professionals?
6) Do you have a copy of a typical plan you might recommend?
7) (if you have not gotten their Form ADV yet.. ask for it)
8) What do you typically charge?
9) Could you give me a list of any possible conflicts of interest? (other people/companies that might pay planner extra money for pointing you in their direction)
10) Can I have it in writing? (get them to give you a written record of what is agreed on, and keep it in your files)
11) Do you have a few references of current and former clients with financial goals similar to mine?

Here is a GREAT checklist you should print out and take with you:
Checklist For Interviewing a Financial Planner

Make a choice

After all the interviews, TAKE YOUR TIME with making a final decision. You will probably be paying several hundred dollars a year for a good financial plan, and it's worth the extra time up front to make sure you get started on the right foot, where the plan can more than make up for it's cost. Check references. Look up Form ADV information. Who are you most comfortable sharing your financial information with?

Take Action

Finally, remember... even the best financial plan is worthless if YOU do not take action!

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