Insider Darwin Abrahamson

Your decision brings you face-to-face with the most difficult task in the whole financial planning process: how to find this wise, objective person to guide you. You will be placing an enormous amount of responsibility on the planner, so you'll want to find someone who is knowledgeable, experienced and possesses a high degree of integrity. That's a pretty tall order to fill.

Asking for Referrals The first thing you do is ask your friends for a referral. However, according to Ellen Schultz, staff reporter for The Wall Street Journal, "If you want to find a good financial adviser, don't get a referral." She goes on to say, "In fact, don't do most of the things you're told to do in brochures on how to choose a financial adviser."

But if you can't ask your friends and you can't rely on all those brochures written by marketing people at brokerage firms and life-insurance companies, how do you begin the process of finding a financial planner? The first step is to get familiar with the designations you see behind the names of the professionals in the business of providing individual financial planning services.

Cracking the Credentials Code
You may be under the assumption that a person who refers to himself or herself as a "financial planner" or "financial adviser" has obtained a license of some sort to practice financial planning. Since there is no such thing as a financial planning license, you would be wrong. And there are no state or federal laws that define qualifications for an individual practicing financial planning. In fact, according to the Certified Financial Planners' Board of Standards, "No experience or proof of competency is required to call oneself a 'financial planner' in the United States."

But certification does carry special requirements. The three designations most recognized for financial planners by other professionals are: Certified Financial Planner(r) (CFP); Chartered Financial Consultant (ChFC); and the newest designation, Personal Financial Planning (PFP), which is granted exclusively to CPAs specializing in personal financial planning.

To earn the designation of CFP, you must complete a two-year, five-part program that examines key concepts in areas essential to developing a comprehensive financial plan. After completion of the course, you must pass the CFP Board of Standard's certification examination before you are allowed to use the CFP(r) marks.

The ChFC designation identifies an individual who has completed the requirements for certification from The American College in Bryn Mawr, Pennsylvania. ChFC is the most common designation you will see earned by insurance professionals who provide financial planning services.

The CPA as Personal Finance Planner
The American Institute of Certified Public Accounts (AICPA) has established an accreditation for CPAs who specialize in personal financial planning (PFP). There is no core curriculum. In order for a CPA to earn the designation of PFP, he or she must be a member of the AICPA, complete a form that demonstrates their experience and expertise in personal financial planning, and register to take the AICPA's examination for certification. After successful completion of the examination, the candidate will be sent six reference forms to substantiate the candidate's personal financial planning experience.

After you narrow down which designation you feel will best suit your needs, your next question is: "Do I want a fee-only financial planner, a planner who charges fees and commissions, or a planner who is only compensated by earning commissions?" If you choose the second path, then you should also ask yourself whether or not your financial planner is receiving commissions without your knowledge.

It's an important question. You would be amazed at the number of people I have talked to who thought they were getting advice strictly on a fee-only basis, when in fact their planner was also earning commissions on the products sold to them to implement the changes recommended by the planner. Unfortunately, even when you do ask the planner specifically how he or she is being compensated, the planner may not fully explain that he or she is also receiving part of the annual fee charged by mutual fund companies or part of the rear-end fee triggered when you sell a rear-end loaded mutual fund.

Someone Is Receiving a Commission
The majority of all annuities, disability and life insurance products pay a commission to a sales agent. Do you know who is receiving this commission? You should try to discover the answer to this, because when you buy a loaded mutual fund or a "commissioned" annuity, disability or insurance policy, you are paying someone a commission. Only licensed brokers and insurance agents can receive commissions. Ask your financial planner, including your CPA, if that's whom you're using as a financial planner -- if he or she is also a licensed insurance agent or NASD broker.

Many of you may be unaware that a number of states now allow CPAs to obtain an insurance and securities license. This allows them to earn commissions on products you may purchase to implement a change in your financial situation. So do not assume that your advisor is not earning commissions.

Resources
To find a fee-only CPA financial planner, you may contact the National Association of Personal Financial Advisors. The NAPFA was established in 1983 to assist fee-only planners in enhancing their skills, emphasizing NAPFA members' roles as fiduciaries. You may contact them by calling (847) 537-7722 or visit their Web site.

A thought to leave you with: According to the NAPFA, "Self-dealing is the principal problem in the financial services field today, because significant conflicts of interest exist if financial planners act as both advisors and commissioned sales people who earn their income from the investments and purchases they recommend. By refusing any compensation other than client fees, fee-only financial planners can remain unbiased and work in their client's best interests."

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