Financial planners can help you achieve specific financial goals or provide comprehensive financial management. Before you work with one, it’s important to understand their credentials, compensation methods, and how to research their background. This article covers some essentials.

Common Credentials

The term “financial planner” is not regulated. However, certain designations are regulated by government or industry standards. Here are two of the most recognized:

• Investment Adviser Representative (IAR)

IARs provide investment advice and are regulated by the government. They must adhere to a fiduciary standard which means they are obligated to act in your best interest. You can look up the background of an IAR with the Securities and Exchange Commission (SEC) disclosure tool at https://adviserinfo.sec.gov/

• Certified Financial Planner (CFP®)

CFPs can provide comprehensive financial planning services. The credential is issued by the Certified Financial Planner Board of Standards. The CFP board is a nonprofit professional organization and requires CFPs to adhere to a fiduciary standard. You can find more information at https://www.letsmakeaplan.org/. Many CFPs also hold the IAR credential.

Compensation methods

Financial planners earn a living through a variety of pricing methods. Common methods:

• Commission: Insurance products such as annuities and some types of securities include a commission that is paid to the financial professional that markets the product.
• Assets Under Management (AUM): A client is charged a percentage based on the amount of assets the financial planner manages. Many planners set a minimum level of assets they will manage.
• Fee-Based: This means that clients can be charged AUM fees and/or commissions.
• Fee-for-Service (also known as “fee-only”): This is a relatively new method of pricing. The financial planner sets a specific fee for advice based on an hourly fee, an annual subscription, or the scope of financial planning services needed.

Research Business Practices

The Securities and Exchange Commission requires Investment Adviser Firms to post Form ADV Part 2A brochures on the website https://adviserinfo.sec.gov/

The brochure will provide comprehensive information about their business practices and compensation methods. You can find this by looking up the adviser and clicking on the firm’s name.

Informed Decision Making

Researching a financial planner before making an appointment can save you time, money, and help you to find advice that meets your needs. Understanding their credentials, background, and compensation methods is essential to making an informed decision.

Microsoft Co-Pilot was used to improve format, clarity, and grammatical structure.

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