remember trinity in the matrix: how financial planners profit
August 21, 2007

It’s the first Matrix movie.

We see Neo (pre-freedom) in a tech dance club with Trinity leaning over, whispering in his ear:

It’s not the answer but the question, it’s the question that drives you…

And the same the-question-must-drive-you theory applies when researching how financial planners make their money. I find it central to seeing if my best interests govern their decisions -vs- their eyes for profit.

commissions? commissions on which products? salary? fee-based? a percentage of your assets?

But what about chump change?

One must ask the fee question to be clear on a planner’s loyalty. Do they get a percentage for select products? If so – how compatible are those products with your needs?

Liz Pulliam Weston with MSN Money outlines clear, crisp questioning for potential financial planners, and the compensation point.

To avoid a good ‘ole head spin on this topic, I find knowing how to verify planners’ answers is key. Frankly compensation can range from fee-only per product sold or an annual fee based on your assets or wrap fees where management fees + annual percentages + fee-based amounts are rolled into one charge or hourly charges or annual retainers.

It’s plenty if not too prickly to process if it’s not your profession. (alliteration addiction…)

So ask to at least learn how your assets & purchases impact their fees, and therefore their judgment. And if the potential planner admits to offering limited services with limited products — I vote walking out the door. They would be admitting to having limited capacity to advise your overall financial reality.

To reiterate, knowing how and where to cross-check answers is useful (and empowering to the layman). Weston says it well, referencing where to cross-check your potential planners’ answers to the payment question:

Ask — and then do more research. If your planner is a registered investment adviser (RIA), ask for a copy of his form ADV, Parts I and II. This document, which must be filed with the Securities and Exchange Commission, outlines whether the adviser accepts fees, commissions or both. If the adviser’s practice is too small to be regulated by the SEC, ask for the state equivalent of this form.

To cross-check their licenses, check these registered authorities:
Certified Financial Planners Board of Standards
American Institute of Certified Public Accountants, financial planning division
Society of Financial Services Professionals

get tough, 10 second vid: wanting a hard arse for a financial planner
August 20, 2007

Kiplinger’s annual retirement planning issue gives keen & concise interview tips for your financial planner search.

One example here re: learning their client complaints policy:

I’m meeting with different planners and comparing their advice.

I liked last week’s planner, his personality & warmth. But after considering Kiplinger’s points to consider, I wouldn’t trust him with significant decisions. I’m not sure why except he seemed almost too warm and fuzzy. Professional, yes; dressed in fine business attire, yes.

But he didn’t offer that clear, decisive tone aka “Jill I want you to consider, this, this, and this.” Possibly this would emerge after that initial meeting. I led the meeting, which is what I prefer. So – ha – maybe I didn’t give him a chance to be decisive. And Russell Bailyn makes an intriguing point about emotions, financial planning, & cookie cutter advice.

More questions to ask per Kiplinger’s:
— what process do you follow to identify goals and evaluate performance?
— what are your sources of research and information?
— what’s your fee structure?

And what you should be very honest about, even if your gut says they’d be fun for beers:
are they candid & intelligent?