I recently wrote about a financial planning seminar that I had attended a little while ago. I mentioned one couple who were happy customers of the financial planner who invited us to dinner. They were particularly happy with him because he put them into some great investments.

The best one of these investments was – all after-tax income! The wife proclaimed, “We did not even have to pay a commission to get into this.” That is how terrific this financial planner is. He finds safe investments with this kind of return – without incurring any risk or cost.

I for one would love to put my money into this investment, wouldn’t you? Alas, the couple could not accurately describe what the investment was and how it really worked. In their view it was a great investment and this financial planner was “just great”. End of story.

Okay, so I don’t have many details about this investment with a fixed and high rate of return, but if you are not buying US government bonds like T-Bills you always should assume you’re taking some sort of default risk. US government bonds are the only financial instruments that do not carry any default risk. But this couple steadfastly assured me that there was no risk with this investment.

What does this tell me? Well, in all likelihood the financial planner is a good salesman. He may be a good financial planner, too, but he certainly is an excellent salesman. How else could he convince these customers that they are getting about three times the prevailing risk-free interest rate without incurring any risk? I’d say he’s also great at generating commissions for himself.

This also tells me that the financial planner was probably not upfront with his customers. I am sure that he had his customers sign all legal papers that get him off the hook in case things go wrong. But from what I could gather, his customers did not fully understand the financial products he sold to them. He may have fulfilled the legal requirement for disclosure but this does not mean his customers really knew what he was selling them.

So, what does this tell you? The bottom line should be a broadcast of this advice: when you choose a financial planner, be very careful!

There are some good tips on various websites that help you chose a good financial planner. I do not see a need to repeat these tips here. I’ll simply ask you to just check out some of the sites about financial planners at the bottom of this page. Using their tips should bring you some peace of mind when it’s time to settle on a financial planner to advise you on how to manage your hard-earned money.

http://www.cfp.net/learn/knowledgebase.asp?id=6
http://www.planforyourhealth.com/about/finplanner/
http://www.thestreet.com/story/10412811/1/how-to-choose-a-financial-planner.html
http://www.wisebread.com/how-to-choose-a-financial-planner-yes-you

Tags: financial planner, personal finance