Be choosy when hiring a financial adviser
Page | 1 | 2 | 3 |

Those earning the designation Chartered Financial Analyst from the CFA Institute, for example, are financial analysts who must successfully complete three rigorous exams and work at least three years in making investment decisions. A knowledge of ethics is a key component of each exam and charter holders must sign an ethics statement each year. Its examination process takes at least two years, and has a pass rate of less than 60 percent.

Plenty of other designations exist for various areas of specialization. For example, "ChFC" stands for chartered financial consultant, a title held mostly by insurance professionals who have broadened their expertise into financial planning. CPAs, or certified public accountants, primarily handle taxes.

And then there's "CDFA," an acronym for certified divorce financial analyst. Stacy Francis, CFP, CDFA, with Francis Financial in New York City, says, "If you want someone who can cover all the issues, however, you're going to be looking at a CFP."

Experience counts
If the CFP designation trails someone's name, does that guarantee that he or she is a good adviser? Well, no. As an example, nearly two dozen people had their CFP certifications suspended or revoked in 2005 alone. Joshua M. Barron, a lawyer with JMB Financial Services Group in Troy, Mich., notes that he intentionally does not have the CFP designation. He prefers to rely on his law degree and his actual experience in financial planning.

"The CFP exam does prove you took and passed an exam, but it doesn't necessarily prove you know how to manage finances. That's something you learn by doing," he says.

As a starting point, Barron suggests you ask for referrals from people you know and trust. "Are you getting your referral from a CPA or a lawyer, or from a mailing, TV commercial or seminar?" Ask for a work history, credentials, education and even possibly a client list.

How they get compensated
Financial planners can generate income in various ways.

How financial planners get compensated:

• Commission-based. Most financial planners earn income through commissions on sales of products. "Those products can be things like life insurance, long-term disability insurance and commissioned investment products," says Brett A. Coffman, M.B.A., CFP, and EA (which stands for enrolled agent, a tax designation), of Matrix Wealth Advisors, in Charlotte, N.C. • Combination of commissions and fees. Some planners not only earn commissions from the sale of products but charge a flat fee, or a fee based on a percentage of the assets they manage. Coffman says the flat fees can range from $500 to $5,000, annually. • Fee-only advisers. These advisers do not take commissions, but instead charge either set fees or asset-based fees. "Fee-only advisers focus only on the advice," says Coffman. "There are no product sales." The percentage charged varies from company to company and region to region. A typical fee-based arrangement might be 1 percent of the first million dollars of assets under management, 0.75 percent of $1,000,001 to $2 million, and 0.5 percent for everything over $2 million. • Hourly. This is a fourth option and not as common for a long-term investment relationship. Bernard M. Kiely, CPA, CFP, of Kiely Capital Management, for instance, charges $200 an hour with a minimum two-hour rate for simple advice. "I work with a lot of younger people on how to allocate their 401(k). There's no place where they can go for objective advice. I also work with newlyweds for things like planning to save for a new baby's college expenses."