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How to decide if you should hire a financial planner

Clint Proctor   

How to decide if you should hire a financial planner
Finance5 min read
young couple with financial planner

Most of us have a sincere desire to handle our money responsibly, protect our families from financial danger, and prepare for retirement.

But, unfortunately, most of us have limited experience in the worlds of investment, insurance, and estate planning. Sometimes we're just not exactly sure which financial step to take and are looking for a little help.

Enter financial planners. You may have heard of financial planners before, but you may be surprised to discover how many ways they could help you. Let's take a look at what a financial planner does, who needs one, and how to find the right financial planner for you.

What does a financial planner do?

A financial planner gives expert advice and assistance to help you reach your financial goals. What that looks like exactly will depend on your situation and needs. Here are some of the areas where a financial planner could help you:

  • Budgeting and saving
  • Debt reduction
  • Investing
  • Insurance
  • Estate planning
  • Tax optimization
  • Retirement

In some cases, you may consult a financial planner for advice on any one of the specific issues listed above. Or the financial planner could help you develop a thorough financial plan that addresses each of these elements.

If a full financial plan is what you're looking for, the financial planner will often start by having you fill out a questionnaire. You could be asked to answer questions about your current debt, savings, investments, and insurance policies as well as your tolerance for risk.

These questionnaires help the financial planner identify areas for improvement. After evaluating your current situation, the financial planner will draft your financial plan and talk it through with you. After hearing your financial plan, you should have a solid "plan of attack" for reaching your financial goals.

Find the right financial planner for you using SmartAsset's free tool »

How is a financial planner different from a financial adviser?

It's important to understand that "financial planner" and "financial adviser" are general terms that could apply to anyone who gives financial advice. There is no specific criteria or certifications that separate these two titles.

However, if your financial adviser or planner is giving investing advice, he or she must pass the Series 65 exam. Also, they must work as an Investment Advisory Representative under a Registered Investment Adviser (RIA) or become an RIA themselves.

Finally, it's important to understand the difference between the general term "financial planner" and the Certified Financial Planner (CFP) designation. While anyone can call themselves a financial planner, it takes a lot of time and work to become a CFP.

The CFP designation is one of the most respected in the financial advising industry because of the level of education and experience that is required and the code of ethics that CFPs must adhere to.

How much do financial planners cost?

The cost of consulting a financial planner will depend on their pricing model. If you're just looking to meet someone a few times to build your financial plan, you can expect to pay between $100 to $400 per hour.

If you'd like for your financial planner to manage your investments on an ongoing basis, many use an assets under management (AUM) pricing model. Planners who use this model often charge a fee of 1% to 2% of your portfolio size. So for a $100,000 portfolio, you could expect to pay $1,000 to $2,000 in advisory fees per year.

Some financial planners may also earn commissions on the investment products that they sell. Many investors frown upon this because of the potential for conflict of interest. If you want to avoid financial planners who accept commissions, look for advisers who use a "fee-only" pricing model.

Who needs a financial planner?

If you're a high earner or have a high net worth and you're looking for advanced tax-saving strategies or estate-planning advice, you may need a financial planner. It can also be a good idea to consult a financial planner during seasons of change, like when you're getting ready to start a family, enter retirement, or buy a home.

If you're specifically looking for help with managing your investments, you may not need a financial planner. Instead, you may be able to get the investing service you need from a robo-adviser.

Robo-advisers use algorithms to match your portfolio to your risk appetite and will automatically rebalance your asset allocation over time. Plus, robo-advisory fees are typically much less expensive than human advisers, with some starting at 0.25% of your assets under management.

Where can you find financial planners?

If you think that a financial planner is right for you, there are several places to find credentialed candidates. First, you can visit the National Association of Personal Financial Advisors. Each of its members uses a fee-only pricing model. Garrett Planning Network and XY Planning Network are two other popular places to find fee-only financial planners.

When you find financial planners who say they've earned the CFP designation, you can verify their credentials using the CFP Board's Verify a CFP Professional tool. Or if you're specifically looking for a Certified Financial Planner, the CFP Board's Let's Make a Plan website could help you find one near you.

SmartAsset's free tool can also help you find a financial planner in your area »

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.