Most people like to keep on top of their money. However, it's not always a good sign when your financial planner calls too often. It could mean you're actually working with a thinly veiled salesperson, that your planner doesn't have much experience, or worse.

To avoid these problems, it's important to understand what financial planners do, how they make their money, and what you should expect from a good planner.

In Pictures: 10 Tips For Choosing An Online Broker

Financial Planner - An Unregulated Term
The term financial planner can actually refer to a variety of financial professionals. There are some financial planners who will simply help you develop a financial system for reaching your financial goals. Others will help you invest your money, or even actively manage your money on your behalf. Finally, there are some financial planners who provide a comprehensive set of services, including financial planning, investment management, estate planning, wealth management and other services.

In addition to understanding what services a financial planner offers, it's also important to research the credentials of prospective financial planners. Many people may be surprised to learn that it does not take any financial education or investment experience in order to call oneself a financial planner. A true financial expert will have completed extensive coursework, have years of financial experience and will most likely possess relevant professional certifications. (For more, check out our Certified Financial Planner Exam Info Page.)

How Financial Planners are Compensated
Financial planners make money in two main ways. First, many planners operate under a commission model, where they make a sales commission when you buy investments. Other planners operate under a fee-only model where they charge a fixed price for their services. The fee-only model should not be confused with the fee-based model, which means that planners collect both fees and commissions.

Most financial experts criticize the commission model because it presents a conflict of interest for the financial planner. Commissioned planners have an incentive to steer you toward investment choices that pay higher commissions. They also have an incentive to buy and sell frequently in your account to increase the commissions they make. Even if your planner is honest, it can be hard to trust their advice.

The fee-only model is preferable in many ways because the planners' advice is not biased by their compensation scheme. The fee-only model means that you often pay a larger cost upfront which may make financial planning services seem less affordable for small investors. However, the hidden costs of commissions are often far more expensive over the long run. (Learn more, see Paying Your Investment Advisor - Fees Or Commissions?)

What to Expect from Your Financial Planner
A planner should spend a lot of time with you up front, getting to know your total financial situation, understanding your goals, and assessing your risk tolerance and investment preferences. They should walk you through a long-term financial plan for the areas where you need advice, and outline the major steps along the way. Finally, they should commit to review the plan with you on a periodic basis, usually at least once per year, but more often if your needs change more frequently.

Why Not Getting Called is Good
You should not expect (or want) your financial planner to call you each time the market is down. An experienced planner will have seen plenty of bear markets and has the composure to ride out the tough times and help you follow through on your financial plan. While you may think that you want your planner to keep you in the loop, there are at least three reasons why you don't want your financial planner to contact you too frequently:

1. Good investing is like a chess match. A long-term financial strategy is played out slowly as a series of careful moves made through extensive planning. If your planner is calling because he or she is frequently surprised and is constantly changing strategies, it's a sign your planner may be inexperienced.

2. Frequent calls asking you to change your investments may indicate that your financial planner is more salesperson than financial expert. Buying and selling frequently may work for hedge funds, but it is almost always a bad deal for retail investors. It wracks up high transaction fees and can bring a big tax bill each April. Both of these factors drag like an anchor on your investment returns.

3. Most financial planners have many clients and not enough time to call all of them, so no news is often good news – your money is likely doing pretty well. If your financial planner is contacting you outside of the occasionally check-in call, it may be because something has gone awry with your money.

The Bottom Line
It's only natural to be concerned about your money, and your financial planner should check in every few months to ensure you are still on track. Some people prefer to know exactly what their money is doing every day, but in many cases, not receiving a call each week from your planner can actually be a good thing. (For more tips, check out Find The Right Financial Advisor.)

Catch up on the latest financial news in Water Cooler Finance: Crying Over Spilled Oil, And Buffett Goes To Court.

Related Articles
  1. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  2. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  3. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  4. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  5. FA

    Paying for College: Utilize These Top Hacks

    Saving money for college is difficult for many families, but it doesn't have to be. Here are some overlooked hacks to save money on college costs.
  6. Financial Advisors

    Bull vs. Bear Markets: How to Be Prepared for Both

    Bull and Bear Markets are a reality that every investor must be prepared for. Here are a few tips.
  7. Retirement

    Top Signs You Aren’t Ready to Retire Yet

    Think you are prepared to retire? These warning signs may indicate otherwise.
  8. Professionals

    Parents: Avoid This Retirement Savings Mistake

    Parents should make saving for their own retirement a priority over helping with their children’s college costs.
  9. Personal Finance

    Blockchain Boom Could be the Next Big Thing for Tech Startups 

    Blockchain technology offers startups the ability to create flexible and secure businesses. It's a growing trend, but startups' success in deploying the technology to create products and services ...
  10. Professionals

    What the Ultra-Wealthy Want from Their Advisors

    When accessing products and solutions, the wealthy prefer using their relationship manager to a specialist, according to a new study.
  1. Do financial advisors charge VATs?

    The Personal Finance Society (PFS) and with Her Majesty's Revenue and Customs (HMRC) have outlined when a value-added tax ... Read Full Answer >>
  2. Do Sallie Mae loans go directly to your school?

    Sallie Mae is the biggest provider of financial aid and student loans in the United States. The company operates as a private ... Read Full Answer >>
  3. How do financial advisors help you avoid escheatment?

    Financial advisors can help you avoid the escheatment of your financial assets by regularly reviewing all of your accounts, ... Read Full Answer >>
  4. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  5. How do mutual fund managers make money?

    Mutual fund managers get base salaries, which vary greatly depending on the size and pedigree of the fund company. They may ... Read Full Answer >>
  6. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center