Not All Financial Advisors Are Equal
When you start looking for a financial advisor, you're likely to come across categories such as the following:
Financial consultants
Financial planners
Money managers
Personal financial specialists
So who's a mid-lifer to hire? In order to choose the type of advisor who will be able to do the best job for you, it's important to understand what each of those categories of financial advisors entails. Let's have a look.
Financial Planners
Financial planners can be anyone who offers financial advice or services. Many people use the terms financial planner and financial advisor interchangeably.
A financial planner, as the term implies, will help you come up with a financial plan. And she may or may not implement the plan, depending on your agreement. Some people prefer to execute their financial plans on their own, while others like to work closely with an advisor.
If you hire a financial planner, make sure you're familiar with her credentials. Qualifications can vary widely within this category of financial advisor, with some advisors having far more expertise and experience than others. The first question you should ask is whether or not the financial advisor is certified.
Certified Financial Planners
A certified financial planner, or CFP, has earned the Certified Financial Planning credential, which is a national certification. This is accomplished by completing a home-study course and passing a cumulative, 10-hour exam.
In order to qualify for certification, a person must have worked for three years in a financial area, such as banking, planning, or investments.
Once certified, CFPs are charged with keeping up with what's happening within the financial industry, and must take 30 hours of continuing education courses every two years. They also must promise to adhere to a prescribed code of ethics.
Financial Consultants
A financial consultant provides an overview of financial information and options in order to help you choose the products that will best meet your financial needs.
Money Morsel
A certified financial planner (CFP) is, by any other name, still certified. CFPs might be called financial planners, financial consultants, or financial advisors. The important thing is that they're all certified.
He may, for instance, describe to you in detail the advantages and disadvantages of different kinds of IRAs, or how much money you'll need in order to invest in a particular fund. He generally will not produce a financial plan for you, only offer information and advice.
CPAs and Personal Finance Specialists
Many people have a financial advisor, and a separate certified public accountant (CPA). There's an increasing trend, however, for folks to depend on their CPAs for financial help and advice.
If you want to use your CPA as your financial advisor, that's fine. CPAs typically keep up-to-date on what's happening within the industry because they're responsible for knowing about laws and regulations that change all the time. And your CPA, especially if you've had the same one for a long time, is very familiar with your financial situation. Check though, to see if she has been designated by the American Institute of Certified Public Accountants as a personal financial specialist (PFS). Your accountant certainly should be willing to share her credentials with her clients, or, you can check with the American Institute of Certified Public Accountants by calling 212-596-6200. The fax number is 212-596-6213, and you can access the institute online at www.aicpa.org.
Money Morsel
Many people prefer to use the same person as both their CPA and financial advisor because it allows them to deal with only one person. And people tend to use the same accountants for long periods of time, which allows them to develop a relationship with their CPAs.
In order to receive the PFS certification, a CPA must have three years of financial planning experience, and pass a six-hour test.
Insurance Agents
You might not tend to think of an insurance agent as a financial advisor, but some agents specialize in financial planning.
Those who do, may (although they're not required to) have a Chartered Life Underwriter (CLU) or a Charter Financial Consultant (ChFC) designation. Some may have both.
These are designations by the American College in Bryn Mawr, Pennsylvania. Agents must successfully complete a 10-course program in order to receive a CLU or ChFC designation, and must complete continuing education courses in order to remain certified.
Money Managers
Typically, people that have a lot of money are those who employ money managers. Money managers will, after reviewing your overall financial situation, handle your funds, make trades on your behalf, and buy and sell stocks and bonds for you.
They consider all aspects of your finances, including factors such as your risk tolerance and personal goals.
Excerpted from The Complete Idiot's Guide to Personal Finance in Your 40s and 50s © 2002 by Sarah Young Fisher and Susan Shelly. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.
To order this book visit the Idiot's Guide web site or call 1-800-253-6476.
