Imagine you’re building a house, or maybe a new office, warehouse and garage complex for your business. Would you even think of doing that without a plan? And you wouldn’t create that plan without hiring a professional, would you?

Of course not. Yet consider your collective wealth: your home, business, investments and cash on hand — in short, all your assets, financial and otherwise. What is that but the house for you and your loved ones, now and for the rest of your life? Now, doesn’t it make sense to have a plan for that, too?

Yet too many people ignore that common-sense advice. It’s not hard to see why. We tend to be private about our money, whether because of shame or modesty. We also may think no one will really understand our unique situation. And it’s easy to convince ourselves that we already know what we need to about finances. But most of us actually don’t. That’s where financial planners come in.

 

What’s for Sale?

Financial planners come in all shapes and sizes, and in all forms, qualifications and means of compensation. The two largest categories are planners who work on commission for the stocks or other securities they sell, and planners who charge a fee for their work and take no commissions. When it comes to picking a planner to help you make sense of your current and future wealth, there are good arguments for going with a certified, fee-only planner.

What does that mean? Commission-based planners cost nothing up front. But in truth, they are at least partly salespeople. They are typically affiliated with a bank, brokerage house, or other institution whose goal is ultimately to sell you investments. A fee-only planner sells you nothing except time and expertise.

Susan John, national chair-elect for the National Association of Professional Financial Advisors, suggests going a step further: picking someone who is a Certified Financial Planner. Professionals must have that credential to belong to NAPFA, whose members are all fee-only planners. And all members must take a fiduciary oath in which they vow to put their clients interests ahead of all other considerations. None of them take commissions.

“Fee-only compensation promotes the fiduciary standard a lot more cleanly than other types of compensation,” John says. “It allows the planner to provide truly independent, individualized advice.”

 

Setting Standards

NAPFA membership itself may be a useful criterion for picking a planner. Beyond requiring certification, the association subjects all of its membership applicants to peer review of their financial planning skills. To join, a planner has to submit a wide-ranging portfolio that shows the breadth of his or her actual planning experience and knowledge.

“We want to make sure that all of our members are capable of producing a comprehensive plan,” John says. In addition, the association has more stringent continuing education requirements for planners than the industry norm.

The association works with the Certified Financial Planner Board of Standards to help set criteria for certification, but NAPFA and the Board of Standards are separate organizations that operate at arm’s length and have no direct connection, John says.

Even though a fee-only planner doesn’t get commissions or sell stocks, that doesn’t mean you’re on your own when it comes to executing the investments the planner says are appropriate for you. Planners typically work with brokerage houses to create customers’ investment portfolios. For example, John’s business, Financial Focus Inc. in Wolfeboro, N.H., works with TD Ameritrade and Fidelity Investments to manage her customers’ transactions.

But it’s important to remember one thing, she says: “We do not benefit directly or indirectly from the selection of any particular security.”

 

Changing Regulation?

John says the U.S. Securities and Exchange Commission regulating financial planners is a good thing: “We don’t believe that self-regulation is effective. We really do think there should be some sort of discrete regulatory body, whether under the auspices of the SEC or the state or some kind of professional and consumer-oriented board. And it should be separate from any of the bodies that regulate specific functions related to financial planning, like securities.”

John says the cost for a fee-only planner can vary widely, depending on the kind of customer (such as an individual versus an institution), the size of his or her assets, the complexity of the plan, and whether the client needs continuing services or one-time advice.

“It’s pretty typical for someone to be able to come in and have an introductory meeting, discuss what brought them in, and discover whether there’s a fit between the planner and the things the client cares about,” John says. Such meetings are usually free of charge, and if they drift into subjects that are properly part of what the planner charges for, the ethical planner will make that clear in advance.

Once a relationship is ongoing, the planner might charge a certain hourly fee, or a fee based on, for example, the total net worth of the client. “As a rule of thumb, the typical fee for portfolio management is around one percent per year,” John says.

 

Picking a Planner

You should choose a planner in the same way you would choose any other professional advisor for your business — a lawyer or an accountant, for instance. You might look for a planner who has other clients in businesses similar to yours. You should check each planner’s credentials and ask about his or her experience. Ask for references as well, and follow up on them. “And ask about fees — all fees,” John says.

Yes, it will take some time, and yes, it will cost you more up front to hire a fee-only planner instead of relying on a stockbroker whose services include investment planning. But if you think of everything you own as a building in which you’ll live for the rest of your life, you’ll want to know it’s on a solid foundation. And that will be worth the price.