How Certified Financial Planners Work

So you've decided that your bottom line would benefit from the expertise of a certified financial planner. Now comes the hard part -- choosing one. CFPs are categorized based on how they charge for their services: by fee, or by commission.

Fee-only CFPs charge a set hourly fee for providing financial guidance. Their fees can range from around $125 to around $350 per hour [Source: MacDonald]. That may sound like a lot, but remember, it's all fee-only CFPs earn. If they recommend a financial product such as life insurance, they don't receive any reimbursement from the insurance company. As a result, their advice is generally unbiased.

Impartial advice is a big plus. In fact, many financial experts recommend trying to find a fee-only CFP so you can get the most objective information available. Services such as the National Association of Personal Financial Advisors help people find fee-only CFPs in their area [Source: NAPFA]. Unfortunately, many fee-only CFPs only accept clients with lots of money and assets [Source: Womens Finance].

Commission-only CFPs provide financial advice, of course, but they also try to sell financial products. That's how they earn their pay -- they get commissions when they sell you certain products. Commission-only CFPs can be smart, experienced and talented, but they can also be swayed by their own financial concerns. In general, they earn commissions of around .5 percent to 1.25 percent of their sales [Source: MacDonald]. As a result, commission-only CFPs face a potential conflict of interest. Insurance or mutual funds might be good investments for you, for example, but your CFP may suggest annuities -- because the annuities will pay the largest commission [Source: Womens Finance].

Often, commission-only CFPs work for banks, brokerage houses or insurance companies [Source: Womens Finance]. A CFP who works on commission for a bank, for example, can provide good financial advice, but it will be in his or her interest to try to sell you that bank's financial products -- even if that's not in your best interest.

­In addition to these two big categories, there are some hybrids. For instance, some CFPs charge small hourly fees -- smaller than those of fee-only CFPs -- and also earn commissions. Still other CFPs charge on a per-project basis. If you have a lot of complicated assets and need a significant amount of advice, you might want a CFP who charges a flat fee for a financial plan. Your cost could range from $2,000 to $5,000 [Source: MacDonald].

Once you've decided on the type of CFP you want to work with, it's time to turn to choosing a planner. Not all CFPs are created equal, so how can you find the best CFP for your particular needs? Find out on the next page!

So you've decided to look for a certified financial planner. Where do you start? First, get recommendations from people you trust: family, friends, colleagues. Also, organizations like the Certified Financial Planner Board of Standards list qualified CFPs in your area. When you have some candidates, it's time to interview potential CFPs [Source: MacDonald].

You may have anywhere from zero questions to a million for every CFP you interview. There are a few things, however, that should be your highest priority to learn:

­­Qualifications. Almost anyone can call himself a "financial planner." Make sure the person across the table from you is really qualified to help with your finances. Check for degrees, certifications, membership in professional organizations and the like.

You also want to know if this CFP has been in business for 20 years or is just starting out. Find out who they've worked with, if they've done planning for individuals rather than businesses, and what types of planning they've done. If you're unsure how to start saving for retirement, a CFP who has mostly worked in estate planning is probably not a good fit [Source: Board of Standards].

Approach to planning. Everyone approaches finances differently. Find out what kind of planning work this CFP most enjoys. If you're looking for advice on a specific problem, you shouldn't work with a CFP who's partial to comprehensive plans. Likewise, if you relish the thrill of aggressive investing, you probably don't want a very cautious CFP.

Services. Finding out what services a CFP provides is critical. If you want a planner who can sell you insurance, mutual funds or other financial products, make sure your candidate is licensed to provide those services. CFPs also need licenses to give investment advice. Make sure your CFP can work in the financial areas that are most important to you.

Also, find out who, exactly, will be providing these services. You might be working with other people in the CFP's office, too. Make sure you know about all of their backgrounds [Source: Board of Standards].

Payment. Make absolutely sure you know how your CFP gets paid. Does the CFP you're interviewing work on a fee-only or commission-only basis? Is there some other payment arrangement? Remember, some CFPs have business relationships that could create conflicts of interest. Make sure such relationships are disclosed upfront.

If you're paying, find out how much you're paying. Until he or she examines your finances, a CFP may not be able to say how much you'll be charged. However, you should be able to get an estimate before any work begins [Source: Board of Standards].

After the interviews, look into the candidates' records. Check with the professional organizations they belong to -- state and federal agencies -- for any ethical or legal violations. Once everything is squared away, ask the CFP you've chosen to put everything you've discussed into a written agreement that you can keep.

To get started on making your money, visit the links on the next page.

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