Can You Trust Your Financial Planner?

By on November 24, 2014 in Current Events, Retirement with 10 Comments

In a previous article we looked at the things your financial planner should know about your federal retirement and benefits.  This article looks at things you should know about your financial planner.  You should ask your financial planner these questions.

Ask what credentials they possess.  Anyone can call themselves a “financial planner”; there are, however, some designations that indicate the planner has some additional training.

  • CFP stands for Certified Financial Planner.  CFPs must take a series of college level courses that cover major aspects of financial planning and must pass a ten-hour comprehensive examination.  They also must meet continuing professional education requirements.  A CFP with a college degree must have at least three years of individual client experience; one without a college degree must have five.
  • ChFC stands for Chartered Financial Consultant.  ChFCs have an insurance industry background, but must also meet requirements similar to those a CFP must meet.
  • ChFEBC stands for Chartered Federal Employee Benefits Consultant.  ChFEBCs must take a two-day course in federal retirement and benefits.  Two days may not seem like a lot of study, but most financial planners haven’t had any federal specific training.

Ask them how much and how they are compensated.  Financial planners are entitled to earn a living, just like the rest of us, but how they are compensated might affect the recommendations they make.  You will want to get an idea of the investment related costs with each type of planner.

  • Commission-based planners are compensated by receiving a commission for every investment you make.  The commission often comes in the form of a sales charge or “load”.  They might be more highly compensated by selling you a certain type of investment.
  • Fee-only planners charge a fee for their advice, and do not sell investments that have a commission attached.  Sometimes they might charge a percentage fee based on the value of your investments with them.  Though they tend to work with higher net-worth individuals than the average federal employee, more and more of them are extending their outreach to individuals with a more modest net-worth.
  • Hybrid planners (sometimes called fee-based) may charge a fee and receive a commission as well.
  • Salaried planners are paid a salary by the firm that employs them.

You may also wish to ask them about their investment strategy, how long it will take them to develop a plan and other items.  The Securities and Exchange Commission has several helpful publications on financial planners and investment planners available on their website http://www.sec.gov.

You can also investigate a financial planner’s disciplinary record.  The SEC regulates planners and firms that manage $100M or more.  Individual state securities agencies regulate planners and firms that manage less than $100M.  The Financial Industry Regulatory Authority also has a “broker check” feature on its website, http://www.finra.org.

Lastly, listen to the questions your financial planner asks you.  They have a valid need to know information about your net worth, cash flow, etc.  However, you should be concerned if questions such as “How much do you have to invest?” or “Will you be taking a lump-sum distribution from your TSP?” come up early in a discussion.

John Grobe’s latest book, The Answer Book on Your Federal Employee Benefits, has just been released by LRP Publications. The book is written in an easy to understand question and answer format and covers all areas of federal benefits from the perspective of an employee at various stages of their career. Order your copy at shoplrp.com.

© 2016 John Grobe. All rights reserved. This article may not be reproduced without express written consent from John Grobe.

About the Author

John Grobe is President of Federal Career Experts, a consulting firm that specializes in federal retirement and career transition issues. He is also affiliated with TSP Safety Net. John retired from federal service after 25 years of progressively more responsible human resources positions. He is the author of Understanding the Federal Retirement Systems and Career Transition: A Guide for Federal Employees, both published by the Federal Management Institute. Federal Career Experts provides pre-retirement seminars for a wide variety of federal agencies.

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