You could drop in on your banker. He should know money, right? Or you could call the CPA who does your taxes. He spends his whole life dealing with dollar signs, doesn’t he? It’s possible, I suppose, that you could call on a nephew, the one that just got his M.B.A. He’s now a ‘master,’ after all, isn’t he?
You could call on any of those for advice. But perhaps you shouldn’t.
That banker of yours probably knows a fair bit about reviewing loan or mortgage applications and making reasonable business decisions for his bank. Your CPA should know his way around debits and credits and, if he’s doing your taxes, it’s hoped he knows all the IRS rules and regulations. As for your nephew with the newly-minted M.B.A . . . . . . well, maybe he knows how to study.
It’s possible that your banker or your tax guy or your nephew does have all-encompassing expertise and extensive experience in long-term financial planning – the kind of planning that is imperative to protect and grow your nest egg for your eventual retirement.
It’s possible that he is the second coming of Warren Buffet. It’s possible. But I suggest you not count on that.
Who Do You Call?
One measure of a fee-based advisor’s minimum level of expertise and experience in financial planning is whether or not he sports a CFP® designation on his business card and marketing materials. If he does that means he’s a Certified Financial Planner.
A Certified Financial Planner has met the following minimum educational, professional and ethical requirements:
- A bachelor’s degree (or higher) from an accredited college or university.
- Completion of a CFP Board-registered program of study that covers the core knowledge needed to practice personal financial planning, a course of study that is at least the equivalent of 15 semester credit hours.
- Successful completion of the CFP Certification Examination, a ten-hour exam over a two-day period.
- The equivalent of three full years of experience directly related to personal financial planning.
- A written commitment to adhere to the CFP Board’s Standards of Professional Conduct, including the Code of Ethics and Professional Responsibility, Rule of Conduct, and Financial Planning Practice Standards and the acknowledgement of the CFP Board’s right to enforce its standards through its Disciplinary Rules and Procedures.
A very complete description of the CFP designation and requirements can be viewed at www.cfp.net.
I’m certain that there are good and bad CFPs, just as there are good and bad salesmen. But protecting and growing our nest egg over time with the advice of a fee-based CFP advisor increases the odds that we won’t fall prey to either someone selling us something that is not appropriate for our situation or that we won’t take risks that will harm us.
A personal note. If I were seeking advice from a CFP I’d find one that had been practicing for at least a dozen years. That would mean he has been around through two major market meltdowns, the dot-com debacle at the turn of the century and the financial fiasco of a couple of years ago. I wouldn’t be afraid to ask him what his advice was to his clients and how they fared during those periods. I also wouldn’t be afraid to get, in advance and in writing, a description of exactly what he is going to do for me and exactly what it will cost me. Just because that CFP has a degree and some experience doesn’t mean that he has more common sense than me.
And, at the end of the day, it’s your money and not his.