A good financial planner can give you knowledgeable, unbiased advice on investments, insurance, taxes, and estate planning. He can save you time, money, and angst. Others are just glorified life insurance hucksters looking to branch out into mutual funds. Of course they say they give knowledgeable, unbiased advice on investments, insurance, taxes, and estate planning. (Note to insurance salespersons: Yes, we know you are wonderful and are only in business to help people. It's the other guys we're writing about.)
When it comes to picking a planner, there is one key question to ask: Who's paying the planner? Obviously, the planner is making a living somehow, right? We haven't met one yet who works as a volunteer to the middle class. So where's the money coming from? If it isn't coming from you, it's obviously coming from the insurance company, mutual fund company, annuity, or investment program that the planner is recommending. So who's he working for, you or them?
A fee-only financial planner works for you. You pay for his time and expertise and, presumably, he leads you safely through the financial minefields to the land of personal wealth.
If only it were that easy.
Using a fee-only planner eliminates conflicts of interest but can't ensure competence or even honesty. Your best bet is to invest with your brother-in-law's advisor -- the one who's guided his family for decades and made them wealthy. If you don't have one of those handy, your next-best bet is to look for a fee-only Certified Financial Planner (or other professional designation) who has been in business for a while and who is willing to explain things to you in detail. Talk to several and make sure you thoroughly understand how they are compensated.
When you find one you trust, don't follow his or her advice blindly. A financial planner gives you recommendations, but you have to live with the results. Does the advice make sense? Do you really understand it? What does it cost to implement, and what does it cost if you want out? If it's an investment, what is the expected return? What's the risk? And, one more time, who is paying the planner?
There is a lot more to know before hiring a pro. If you're considering getting a financial planner, visit our Advisor Center.
More from The Motley Fool
Why Shares of Energizer Holdings Are Surging Today
The battery and lighting company will spend $2 billion to buy some competing brands.
How Do Your 401(k) Contributions Compare With Your Fellow Earners?
Are others at your income level contributing more than you?
Why Shares of Eastman Kodak, Riot Blockchain, and Xunlei Are Plunging Today
A pivot to crypto means these stocks trade up and down with the price of digital currencies.