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Finding a financial planner

Chris Farrell Dec 9, 2009

Question: My mid-twenties daughter has come into ~$250K that she would like to invest. Her near-term objective is to use the interest/growth to supplement her annual income. Before she talks to any financial advisers, what should she be wary of and what credentials are essential in a financial planner? Thanks. Gerald, Oxnard, CA

Answer: My most important suggestion is for her to be conservative with the money. If I were her, I would lock it up in FDIC insured investments, accounts backed by similar federal insurance at credit unions, and short-term U.S. Treasury securities. She won’t make much of an income in today’s low interest rate environment. But she’ll preserve the value of the inheritance while she educates herself about managing money. It also takes time to find a good planner that will work well for her.

Next, I wonder if she really needs a financial planner. My bias is that most people don’t and, even if she does, she should invest time learning the basics on her own. When I lived in New York in the ’80s and ’90s, the bargain basement clothing retailer Sy Syms ran these memorable commercials with the tag line, “an educated consumer is our best customer.” Well, what’s true for clothing is even more true with money. One of the biggest money mistakes people make is to turn their finances over to a professional to manage without really understanding the basics of the business. It’s a recipe for trouble and disappointment.

If she does decide that hiring a pro is the right route for her there are several ways to find a planner. The best method is probably networking, talking to neighbors and colleagues that work with a financial planner. Get their recommendations. She can also go to the website of the National Association of Personal Financial Advisors. Another resource is the Financial Planning Association.

I favor the Certified Financial Planner (CFP) designation and the Chartered Financial Analyst (CFA) designations. Both signal that the planners are knowledgeable about a wide range of financial issues, from estate planning to portfolio management. They are required to invest in continuing education, too.

The fee-only financial planner option is the most expensive. But it’s a good way to ensure that she’s getting objective advice unsullied by commissions earned from selling her financial products.

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