Finding right planner takes goal searching

Q. What is the best way to choose a financial planner? I have limited resources and don’t know the first thing about investing. I need to maximize what I have. – Paula M.

A. The first step is deciding what type of planner you need. This can be confusing because everyone calls himself a “financial planner,” “financial adviser” or something similar. In reality, firms are registered as broker/dealers, investment advisers, or both. Here are the basic distinctions.

A broker/dealer is registered to sell securities. In the process, she makes recommendations that sound a lot like investment advice, but are simply incidental to the business of buying and selling securities. A broker/dealer is held to a suitability standard in dealing with clients. This means she must make recommendations that are appropriate to your goals and circumstance, and your risk tolerance. A broker/dealer earns commissions when buying and selling securities.

An investment adviser is registered to provide investment advice and manage portfolios. Many hold professional designations, like certified financial planner or chartered financial analyst. Investment advisers are held to a fiduciary standard in dealing with clients. So, in addition to making appropriate recommendations, they must always act in your best interest and fully disclose conflicts of interest. An investment adviser earns hourly or annual fees for services.

Neither type is right or wrong, just different. But you must decide which is best for you. A broker/dealer might be a good fit if you have the time, inclination and experience to evaluate the recommendations. Are they consistent with your goals, circumstance and risk tolerance? Otherwise, an investment adviser might be a good fit.

You can identify potential planners by talking to family, friends and trusted advisers, like your CPA or attorney. Also, you can visit the Financial Planning Association website at www.fpanet.org. Its PlannerSearch tool is a quick, easy way to find certified financial planners in your community, and it offers detailed advice about choosing a planner, including the questions you need to ask.

When you’re interviewing a planner, find out about his education, experience and professional designations. Find out about the services he offers and how he charges. Explain your personal goals and circumstance, and make sure the planner works with clients who are similar to you.

Ask if the planner will be acting as a broker/dealer or investment adviser; don’t assume. If the planner is an investment adviser, securities regulations require her to provide all of this information and more in a disclosure brochure.

Finally, check references. Most planners offer client references, and many offer professional references, like CPAs with whom they have clients in common. Also, check licensing and disciplinary history. If you’re considering a CFP, check out the person through the CFP Board of Standards at www.cfp.net.

If you’re considering a broker/dealer, check him out through the Financial Industry Regulatory Authority at www.finra.org. Or, if you’re considering an investment adviser, check him out by calling your state securities regulator.