There are many qualities to look for in a financial planner, but first and foremost, you should look for a financial planner who is fee-only. The reason can be explained through a simple analogy.
Imagine you are hiring an interior decorator. Your goals are to declutter through downsizing your current furniture and then reorganize the remaining furniture into an intentional design. You either don’t want to buy new furniture or want to buy as little as possible.
Now, imagine that your interior decorator is paid by commissions. He does not charge an hourly fee or a flat fee. Instead, the furniture company pays him a portion of the sales he makes to compensate him for recommending their furniture to you. If you buy a $10,000 sofa, the furniture store might pay him $500.
There is no way for this interior decorator to get paid while still acting in your best interest. You don’t want to buy a new sofa. However, buying a new sofa is the only way he gets paid. Either he needs to change his compensation model (to fee-only), or you will not get the interior design you want, or he will not be compensated.
A similar problem exists in financial planning.
If a professional’s only compensation is through pushing financial products, then there is no way for that commission-based advisor to get paid while providing you with comprehensive financial planning. There is no associated financial product with comprehensive financial planning. Annuities, life insurance, and mutual funds are financial products, not a financial plan.
Most clients benefit from a tax plan, retirement plan, life plan, spending plan, and charitable giving plan. None of these services have associated financial products. A commission-based advisor either would need to change his compensation model to fee-only for those services or you will not get the comprehensive plan that you want.
This is why the most skilled financial planners are not commission-based. Salesmen are paid commissions. Planners are paid a fee.
When looking for a comprehensive financial planner, limit your search to fee-only advisors. You can most easily do this, by limiting your search to NAPFA-registered advisors.
Photo by Mitch Gaiser on Unsplash. Image has been cropped.