Anyone can use the term "financial planner." There are no education or experience requirements.
The term "certified financial planner," however, is reserved for planners who have met the educational, ethical and experience requirements of the Institute for Certified Financial Planning. (For more information, visit http://www.icfp.org or call (800) 282-PLAN). Membership in the National Assn. of Personal Financial Advisors (visit http://www.napfa.org or call (888) FEE ONLY) is reserved for planners who are compensated only by fees paid by clients. The American Institute of Certified Public Accountants (http://www.cpapfs.org) also offers a "personal financial specialist" designation for CFPs who meet its education and experience requirements.
Most financial planners are compensated in one of three ways: by fees charged to clients, by commissions from products sold to those clients, or some combination of the two. Commissions have been the usual compensation for the traditional stock broker, although some brokers are now embracing other fee structures and obtaining planner designations.
Seventy percent of planners accept commissions in some form, according to a 1997 survey by the National Endowment for Financial Education.
One in four planners accepts only client fees, while a small number of planners--6%--were paid solely by salaries from their firms, typically large banks and other financial institutions.
Some planners may disguise the fact that they accept commissions by describing themselves as "fee-based" or "fee-offset" planners. Fee-based planners typically accept both fees and commissions, while fee-offset planners rebate a customer's fees based on the commissioned products the customer buys.
The Consumer Federation of America and the National Institute for Consumer Education, which together produced a pamphlet called "Don't Get Burned by the Financial Planner Name Game," decried both terms as potentially misleading, since the planner still has incentives to "push product" rather than offer objective advice.
But others say that the quality of advice, rather than the method of compensation, should be the measure of a financial planner.
For more information on selecting a financial planner, visit http://www.latimes.com/finplan.