Are you thinking about working with a financial planner? There are several things you should consider:
What is Financial Planning? Financial planning is a series of steps taken to help you accomplish your goals. The process usually starts with the planner gathering and analyzing your overall financial situation. The planner will then help you set realistic goals, and prepare recommendations and strategies for achieving those goals. At that point you may either take the plan and execute it yourself, or continue working with the planner, having them help execute the plan.
Should you use a financial planner? You can certainly go it alone when it comes to managing your money. You could also try to do it yourself when it comes to auto repair. In both cases, doing it yourself is a brilliant idea for some, and a very bad plan for others. Mastering personal finance requires many hours of research, learning, and maintenance. As you get older, busier, and (hopefully) wealthier, your financial goals and options only get more complicated. Many people decide it’s not worth the time and effort and delegate that work to a financial planner.
Financial planners can also help you remain disciplined about your financial strategies, removing the emotions from investment decisions or providing an objective third-party perspective. In this busy world, planners can also provide motivation and/or accountability on things you may be inclined to procrastinate on, helping you to stay on track to achieve your goals.
What are their qualifications? Anyone can call themselves a financial planner and you may see a virtual alphabet soup of designations, but more and more, the CFP designation is considered the gold standard for financial planners. CFP stands for Certified Financial Planner and people who hold this designation are required to complete course work on financial planning topics, pass a rigorous exam administered by the Certified Financial Planner Board of Standards, complete continuing education requirements, and commit to a code of ethics.
How are they compensated? When working with a financial planner, it’s important to understand how they are getting paid. Some planners work on a commission. These advisors get paid when you buy an insurance package or investment product. You want to make sure that the advice you’re getting from these folks is in your best interest and not theirs. Others are fee only. These people will usually charge by the hour or on a retainer basis. They may also charge you a percentage of the assets that they’re managing for you. Usually these advisors act as fiduciaries, meaning they have pledged to act in a client’s best interests at all times. Still others are fee based and are compensated with some fees and some commissions. You want to make sure you know which you’re dealing with.
Is there a good fit? If you’re just starting out, you may only need a few hours with a financial planner to get you headed in the right direction. If that’s the case, you want to find a planner that does hourly work, or bills a flat fee, like $2000 for a financial plan. Some planners only work with very wealthy people and may have large minimums to work with them. These planners may charge a percentage of assets managed or flat retainer fees. Regardless of your situation, you want a planner who’ll make the time to focus on your concerns and who’s interested in working with you in the long term.
This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Meritage Wealth Advisory, a local member of FPA.