Why you may want to hire a Christian Financial Planner
As an investor – whether you are a novice or seasoned veteran – there may come a time when you may want to hire a financial advisor. There are several reasons why you might do this:
- You don’t feel that you have the skills or experience necessary to successfully invest your own money.
- You may decide that you would rather spend your time working on your career or business, rather than on your investments.
- You may want to diversify into different asset classes that you don’t entirely understand.
- You may be unsatisfied with the performance of your self-directed investments, and decide it’s time to bring in some professional help.
- You may decide that you want to seek higher returns from individual stocks, rather than relying entirely on mutual funds or exchange-traded funds (ETFs), in which case you might need professional management.
What a Financial Advisor does
A financial advisor is an investment specialist, someone who works in investing as a primary career. They can function either as investment advisors – making recommendations that you will choose to invest in (or not) – or act as an active manager of your account. Active management would include not only investment security selection but also asset allocations within your portfolio.
The advisor can be completely independent – which is preferred – or act as an agent for an investment firm. However, even independent financial advisors typically work with a large investment brokerage firm, which they use as a trading platform for their client’s portfolios. For this reason, they may require that you move any asset positions you have into an account with the brokerage firm that they prefer.
A financial advisor can be compensated either by earning commissions on the investments they put you into, or on a direct compensation method that can be based on an hourly rate, a flat fee, or even a percentage of your investment portfolio.
How to find a financial advisor
There isn’t a black and white answer to this question unfortunately. But our goal is to help you eliminate two major hurdles:
- Finding an advisor who shares your Christian faith
- Finding an advisor near you
Once you find an advisor, we suggest that you interview them and ask them some of the questions we have listed below to get a feel for whether or not they will be a good fit.
The advantages of using a Financial Advisor
We cited the reasons why you might choose to use a financial advisor, but there are advantages even beyond those:
- A financial advisor may have a successful investment track record, as indicated to you by trusted friends and business associates.
- A financial advisor frees up your time by taking over your investment management, lowering the stress in your life and giving you more time to work on other pursuits.
- Though investment information is widely available on the Internet, a financial advisor has the advantage of working in the business full-time and knowing where to find the most relevant information.
- Though many people do well with do-it-yourself investing in bull markets, bear markets can present a bigger challenge; you may decide to go with a financial advisor if the market starts looking choppy and uncertain.
What should you look for in a financial advisor?
An investment advisor is not the kind of professional that you would want to select out of the phone book. There are very specific criteria that you want to know before hiring an advisor.
Some of the factors that should be a part of your decision include:
- Independence – All kinds of career fields can use the term financial advisor; you will have to make sure that he is not employed directly by the company whose products he sells – that will provide an incentive for him to put you into those products, rather than superior investments that may be available elsewhere.
- References – You should have references from at least three or four trusted sources as to the validity and success of a financial advisor.
- Track record – A financial advisor should be able to provide you with some sort of independent verification of his investment performance; if nothing else, you should be able to verify this from personal references.
- Fee structure – You should steer clear of financial advisors who are compensated by commission – that will incentivize the trading of investments to generate fee income. A flat fee arrangement is preferred since it makes it easier for the financial advisor to be objective about your investment portfolio.
Speaking of fees, this could be one of the major negatives about using a financial advisor. When you have a personal, hands-on financial advisor, the fees can be steep. Depending upon the size of your portfolio, the fees can range anywhere from 2% to 8% (or even more) of your portfolio. Not only will this reduce your investment returns, but you’ll also have to pay the fee even if your portfolio loses money.
How financial planners get paid
When selecting a financial planner you should be aware of how he/she is getting paid. There are various compensation structures for financial advisers, but the following four are what you are most likely to see.
These planners get paid commission on each product you buy. If you buy a stock, a mutual fund, get a loan, or anything else, they get a commission. Examples of these types of commissions:
- One-time sales rewards, such as mutual fund “loads,” or the upfront payments that come from selling cash-value life insurance or annuities
- Ongoing, annual service payments, such as annual commissions paid to insurance agents upon policy renewal
- Commissions paid for transactions, such as buying and selling shares of stock
Fee-based on percentage of assets
Some financial planners charge a straight percentage of your total assets on an annual basis. Expect to pay at least 1%, but some advisors may charge a lot more. This is the most common arrangement for paying an independent financial planner and has been increasing in popularity.
Flat fee for a one-time financial plan
You will likely pay a large upfront fee. Expect it to be many thousands of dollars. They will often provide a very detailed write up about your financial details including recommendations for action.
Fee-based on an hourly rate
This arrangement is similar to that of a personal lawyer. They get paid for each billable hour they work. The more work you do for yourself, the more you save. The more you pass off to them, the more it costs.
“Fee-only” financial planners
Be aware that “fee-only” is not the same as “fee-based”. As the name suggests a “fee-only” financial advisor only gets compensated by the fee. Whereas a “fee-based” advisor may also receive other forms of commissions.
Financial Planner and other advisors credentials
As you browse and compare financial planners you will notice that many of them have special designations attached to their names. The designations should aid your search and should not be your sole deciding factor when choosing a financial planner.
- CFP – Certified Financial Planner – awarded by the Certified Financial Planner Board of Standards, Inc.
- CFA – Chartered Financial Analyst – awarded by the Institute of Chartered Financial Analysts
- CPA – Certified Public Accountant
- ChFC – Chartered Financial Consultant – awarded by the American College of Bryn Mar, Pennsylvania
- MBA – Master of Business Administration
- RIA – Registered Investment Adviser
- RR – Registered Representative
- AEP – Accredited Estate Planner – awarded by the National Association of Estate Planners and Councils
- AAMS – Accredited Asset Management Specialist – awarded by College for Financial Planning
- CFM – Certified Financial Manager
- CIC – Chartered Investment Counselor – awarded by the Investment Advisor Association
- CIMA – Certified Investment Management Analyst
- CLU – Chartered Life Underwriter
- CPCU – Chartered Property Casualty Underwriter
- PFS – Personal Finance Specialist – awarded by the American Institue of Certified Public Accountants
- CMA – Certified Management Accountant
- CMC – Certified Management Consultant
- CMT – Chartered Market Technician
- REBC – Registered Employee Benefits Consultant
- RHU – Registered Health Underwriter
- AIFA – Accredited Investment Fiduciary Analyst – awarded by Center for Fiduciary Studies
- AWMA – Accredited Wealth Management Advisor – awarded by College for Financial Planning
- CAIA – Chartered Alternative Investment Analyst – awarded by Chartered Alternative Investment Analyst Association
- CAP – Chartered Advisor in Philanthropy awarded by The American College
- CASL – Chartered Advisor for Senior Living – awarded by The American College
- CDFA – Certified Divorce Financial Analyst – awarded by The Institute for Divorce Financial Analysts
- CEP – Certified Equity Professional – awarded by Certified Equity Professional Institute
- CFE – Certified Financial Educator – awarded by Heartland Institute of Financial Education
- CFS – Certified Fund Specialist – awarded by The Institute of Business & Finance
- CIMA – Certified Investment Management Analyst – or Certified Investment Consultant (CIMC) awarded by Investment Management Consultants Association
- CLTC -Certified in Long-Term Care -awarded by the CLTC Board of Standards, Inc.
- ChFEBC – Chartered Federal Employee Benefits Consultant- awarded by the Federal Employee Benefit Specialist, Inc.
- CLU – Chartered Life Underwriter – awarded by The American College
- CMFC – Chartered Mutual Fund Counselor – awarded by the College for Financial Planning
- CPWA – Chartered Private Wealth Advisor – awarded by the Investment Management Consultant Association
- CRC – Certified Retirement Counselor – awarded by the International Foundation for Retirement Education
- CRPS – Chartered Retirement Plans Specialist – awarded by the College for Financial Planning
- CTFA – Certified Trust and financial Advisor – awarded by the Institute of Certified Bankers
- CWS – Certified Wealth Strategist – awarded by Cannon Financial Institute, Inc.
- FIC – Fraternal Insurance Counselor – awarded by the Fraternal Field Manager’s Association
- FICF – Fraternal Insurance Counselor Fellow – awarded by the Fraternal Field Manager’s Association
- FSA – Fellow of the Society of Actuaries – awarded by the Society of Actuaries
- FSS – Financial Services Specialist – awarded by The American College
- LUTCF – Life Underwriter Training Council Fellow – awarded by The American College
- PRP – Plan sponsor Retirement Professional – awarded by The PLAN SPONSOR Institute
- REBC – Registered Employee Benefits Consultant – awarded by The American College
- RFC – Registered Financial Consultant – awarded by The International Association of Registered Financial Consultants
- RHU – Registered Health Underwriter – awarded by The American College
- RP – Registered Paraplanner – awarded by the College for Financial Planning
- CRPC – Chartered Retirement Planning Counselor – awarded by the College for Financial Planning
- CFCA – Christian Financial Consultant and Advisor awarded by the National Association of Christian Financial Consultants, Inc.
- CSA – Certified Senior Advisor award by the Society for Certified Senior Advisors, Inc.
- CKA – Certified Kingdom Advisor – awarded by the Kingdom Advisors (Ron Blue’s organization)
10 Questions to ask your financial advisor
Use these as a guide for finding the best planner for your particular situation.
- What are your qualifications and background in financial planning?
- What services do you provide?
- How does your faith affect your investment philosophy/strategy and recommendations for clients?
- How are you paid?
- How much do you typically charge?
- What products do/don’t you put clients into?
- What is your average portfolio size and life stage?
- What resources do you have to address issues outside your area of expertise?
- How do you communicate with clients? How often?
- Will I work with anyone else in your office?