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Financial Planning
Types of Financial Planners |
There are two basic types of financial planners --
those who charge you a straight fee for advice and those who earn a commission from any
financial products that you purchase.
1) Fee-Only Planner. Fee-only planners provide advice to their clients
for a set fee. They are not reimbursed by companies whose products they recommend. There
are no commissions. The big advantage of using a fee-only planner is that you receive
unbiased financial advice. The tradeoff. Many fee-only planners manage money for high net
worth individuals only. This caveat eliminates the majority of individuals.
2) Commission-Only Planner. This type of planner provides financial
advice, but also tries to sell products to their clients that generate commissions. Types
of products include annuities, load mutual funds, term or whole life insurance, and other
investments. The big disadvantage of commission-based planners is the conflict-of-interest
that results from their recommendations -- for products that generate handsome commissions
for them, not you. Commission-only planners usually work for insurance companies,
brokerage houses, or banks. Except for the financial advice they offer, they are not that
much different from a regular salesperson.
Certifications
Many financial planners are accredited by a
professional association. Some of the more common certifications are listed below:
- Certified Financial Planner™ practitioner. CFP™ practitioners
have to complete one national exam administered by the Certified Financial Planner Board
of Standards in Denver, Colorado. The coursework prior to the exam normally takes two
years to complete. Three years of financial planning experience is required before the
certification is granted. CFP practitioners abide by a strict code of ethics and have to
complete a continuing education requirement each year.
- Chartered Financial Consultant (ChFC). The ChFC designation typically
requires two years to complete and is granted by the American College in Bryn Mawr, PA.
After finishing the appropriate coursework, a planner will take a 10-part series of exams.
Planners who hold the ChFC designation normally work in the insurance industry. Many also
hold the Charted Life Underwriter (CLU) designation.
- Personal Financial Specialist (PFS). These type of planners are CPAs
who have completed an extensive financial planning exam administered by the American
Institute of Certified Public Accountants (AICPA). PFSs are required to have at least
three years of financial planning experience before they're allowed to hold the
designation.
- Registered Financial Consultant (RFC). To become a RFC, you must have a
federal securities license and a state insurance license. There are no exams. The work
experience requirement demands at least four years in a related field or an industry
designation (CFP, PFS, etc.). RFCs have higher continuing education requirements each year
than other designations.
Note: CFP™ and CERTIFIED FINANCIAL
PLANNER™ are certification marks owned by the Certified Financial Planner Board of
Standards.
Next: Finding a Financial Planner
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