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C.  Dealing With a Financial Advisor

Financial planning is a multibillion-dollar industry made up of hundreds of thousands of individual and small partnerships with a few big brokerage firms and insurance companies. Services typically include recommending investment strategies and advising clients on the best financial products (stocks and bonds, mutual funds, insurance policies, and annuities) to buy. Fees are earned for creating long-term investment strategies and take the form of flat fees ($500-$20,000) for setting up and overseeing a plan, an hourly charge (875-8400) for work performed, commissions (ranging from one-quarter of 1 percent of the investment placed to 100 percent of the first year's premium for a life insurance policy), or a combination.

There is no federal and little state regulation of financial planners. These people are not required to pass exams demonstrating minimum competence such as those required for CPAs and lawyers. Although planners who offer investment advice are required to register with the Securities and Exchange Commission (SEC) and pay a small fee, there is little protection from disreputable individuals. Follow these strategies before hiring any financial planner.

Amanda inherited a significant amount of assets from her mother's estate. At the funeral she was introduced to a man whose card identified him as a )financial planner." Eager to invest her inheritance, Amanda did not meet the planner at his office and forgot to discuss and confirm the financial planner's fees in writing. She also did not take the time to investigate the man's credentials.

The man advised Amanda to invest some of the money in a tax shelter that was later disallowed by the IRS, costing her penalties and interest. Eventually, it was discovered that the man failed to provide her with receipts of purchases and had stolen some of the money earmarked for other investments.

1. Investigate the planner's credentials, including educational background and affiliation with professional organizations. (For example, does the planner have a master's degree in finance or business?) Many professional associations, including the Institute of Certified Financial Planners, the National Association for Financial Planning, and the International Association of Financial Planning, require extensive skills and qualifications before accepting members. In fact, as a first step, it is a good idea to contact one of the leading associations for a referral of several planners located near you to interview.
2. Ask for the names of satisfied clients as references. Speak to these people in depth to get a better picture of how the planner operates.
3. Get personal recommendations from business associates, friends, and relatives who have successfully used a financial consultant.
4. Understand your needs and select a financial planner accordingly Do you need a specialist in, say, retirement or estate planning, or do you want a generalist? Choose a planner who understands your financial objectives and investment philosophy
5. Insist on a written agreement disclosing what services win be rendered and how fees will be earned. Avoid arrangements where the financial planner makes money simply by implementing his or her recommendations; this may show a conflict of interest.

Insist on the following protections before implementing your financial plan:

• You do not give your money directly to the financial planner but to the company, bank, or institution whose assets you are purchasing or acquiring. This prevents the planner from taking your money and failing to turn it over to the appropriate entity.
• You will invest only in deals where the money is insured.
• The financial planner sends regular, accurate statements so you can keep track of your investments.
• The planner cannot make decisions without your approval.
• The planner does not have power of attorney to sign documents on your behalf.