Creating your own financial plan can be a daunting task. If you aren’t sure where to get started or have a plan but want to improve it, a financial planner might be able to help. I’ve never used a financial planner, so I interviewed two friends who use a planner and Graeme Hughes, The Money Geek, to get their insights and perspectives.
In this post, I’ll first distinguish financial planners from other types of financial advisors. The rest of the post provides responses to questions asked by a few of my readers to help you with the following:
- Figure out whether and how a financial planner can help you.
- Prepare for your first meeting with a financial planner.
- Understand the process for developing a financial plan and the deliverables.
- Select a financial planner who meets your needs.
Financial Planners vs Other Financial Advisors
There are many types of advisors who can help you with your finances. In this post, I’ll focus on professionals who provide financial planning services. These professionals can be independent advisors, work for firms that perform solely financial planning services or can be employed by mutual fund companies, stock brokerage firms (e.g., Schwab or Morgan Stanley), other financial institutions (e.g., Ameriprise) or other types of firms (e.g., accounting firms). Most of these financial planners provide a brand range of services intended to assist you in creating a sound financial plan and attaining your financial goals.
Types of Other Financial Advisors
There are many other types of financial advisors, some of whom may be called financial planners, who specialize in segments of your financial plan. Examples of these advisors include:
- Insurance agents who can assist you in finding the best insurance policies to meet your needs. Some insurance agents specialize in just property & casualty lines (such as residences, cars or umbrella policies) or health or life insurance or annuities, while others can assist with several or all types of personal insurance.
- Stock brokers who provide advice about specific companies or financial instruments in which you might want to invest.
- Money managers who make decisions about what to buy and sell in your A group of financial instruments. and execute the transactions.
- Debt consultants or consolidators who can help you find the best strategy for paying off your debts.
- Tax accountants and tax lawyers who can provide advice about your tax situation and how it might impact your financial decisions. Tax accountants can also prepare your tax returns.
What’s Best for You
You’ll want to choose an advisor who has the right expertise to address your questions. If you want help with your overall financial plan, a financial planner is best. If you go to an advisor with a narrower focus in that situation, you might not get the best information for your overall financial health. For example, an insurance agent who specializes in life insurance and annuities would be less likely to focus on non-insurance savings mechanisms, such as 401k’s or exchange-traded funds, than a financial planner with a broader area of expertise.
To be clear, all of these types of advisors can be very valuable in refining your financial plan, but you’ll want to make sure you have the right expectations about their expertise. In fact, your financial planner may refer you to one or more of these consultants on a specific aspect of your financial plan.
What Services do Financial Planners Provide?
The primary service provided by a financial planner is the development of a sound financial plan. This process can include assistance with setting financial goals, budgeting, estate planning, retirement planning, selection of insurance coverages and investment strategies.
The specific services provided will be tailored to your needs. If you are just getting started, the financial planner may focus on identifying goals and creating a A plan showing targets for income and expenses over a fixed time period, such as a month or a year.. If you already have a financial plan and want increased comfort that you will meet your goals, these services could be as sophisticated as statistical (Monte Carlo) modeling of your future financial situations under a wide range of assumptions regarding future investment returns.
As part of or before your first meeting, a good financial planner will ask about the current status of your finances and what your goals are for deliverables to make sure the planner helps you in a way that makes sense for you.
Do I Need a Financial Planner?
Using a financial planner is a matter of personal preference. I’ve never used one, but my background as an A professional who assesses and manages the risks of financial investments, insurance policies and other potentially risky ventures. Source: www.investopedia.com/terms/a/actuary.asp and working with the finance and The possibility that something bad will happen. management departments of insurance companies has given me the confidence to go it alone. However, most people can benefit from good advice. As Graeme says, though, “You only need to be careful not to pay for more than you need.” His thoughts about the services you might want to use by age are:
- A young person starting out might get counseling on budgeting, savings strategies, how much to save, and which tax-advantaged accounts to use.
- Middle-aged individuals with more substantial savings ($100K+) might want to get an assessment of where they stand for retirement and how much to save to meet their retirement income goals, considering all of the resources at their disposal.
- Pre-retirees (5-10 years out) will want to have a As it related to car insurance, a coverage that reimburses you for damage to or loss of your car from any one of a list of specified perils other than a collision. Covered perils include theft, fire... More plan to ensure they have adequately covered all likely scenarios, so they can be confident in their retirement plans before pulling the plug on work.
If you have enough The value of things the company owns and amounts it is owed for it to matter and aren’t highly confident you are on track to meet your goals or you suspect there are gaps in your knowledge, a professional financial planner can help.
For a different perspective on using a financial planner, check out this article from Schwab that I happened to read as I was writing this post.
What Will I Get?
The most important deliverable from a financial planner is a financial plan. Depending on where you are in the process of managing your finances, it will include some or all of the following items:
- Your financial goals
- A statement of your current financial position (The value of things the company owns and amounts it is owed and debt)
- A A plan showing targets for income and expenses over a fixed time period, such as a month or a year.
- Your savings strategies and actions, including
- Short-term savings
- Designated savings
- Retirement savings, sometimes including investment advice
- A plan for re-paying your current debt
- Guidance about the types and amounts of insurance to buy, along with descriptions of your current policies
- A brief description of your income tax situation
- Guidance on what needs to be done to ensure that the legal documents are in place in case you become incapacitated or die
In addition, financial planners can provide longer The time period over which you re-pay the loan projections that show estimates of the growth in your income, The value of things the company owns and amounts it is owed (from investment returns and additions to savings) and expenses. These types of projections can provide insights about your ability to retire when and in the style you want.
Another benefit of working with a financial planner is that you can get referrals to other advisors and can become aware of other financial resources to help with different aspects of your financial life. For example, most financial planners do not draft legal documents, such as wills, trust agreements or powers of attorney. Many financial planners, though, have worked with lawyers who have this expertise and can provide you with a referral.
How Should I Prepare?
All financial planners have their own unique processes. As such, you’ll want to ask your planner the format of the information he or she would like to see. Many planners will provide you with a questionnaire and/or an information request to guide you through the process of compiling your information. Nonetheless, there are a number of fundamental pieces of information that every financial planner will request. They are your:
- The value of things the company owns and amounts it is owed, including retirement accounts
- Monthly expenses
- Current or future defined benefit pension benefits
- Financial goals
Graeme was quite clear that the numerical values above should be firm, accurate numbers, not guesses. It will take some time to compile all of this information, but will ensure that you get the best service from your financial planner. He also added that you should “run away” from any planner who makes recommendations before obtaining this information.
What is the Process?
You are likely to meet with your financial planner once or twice to create or refine your financial plan initially. Some planners prefer to learn about your finances by reviewing documents and answers you provide to their questionnaires. Other planners prefer to have an introductory meeting to learn about you and your finances. In either case, the financial planner wants to learn your objectives and concerns, along with your family structure.
The financial planner will then assess your situation and goals, identify gaps and challenges, and determine the most appropriate strategy for ensuring your goals will be met. The planner will prepare a financial plan and an investment plan, including an asset allocation assessment for investments, and provide them to you in writing.
Your financial planner will then meet with you in person to present the plan and make recommendations. You and your planner will then identify the action items that come out of the plan and assign them to either you or the planner, depending on their nature and your planner’s areas of expertise.
How Often Should I Check Back In?
Financial planning is not a “one and done” exercise. You’ll want to track your progress against your plan and adjust it as necessary. Adjustments might be needed as there are changes in the economy and investing markets or changes in your personal life, such as marriage, a death in the family, children, or a change in your goals.
If both your life and the economy are fairly stable, once a year may be often enough to meet with your financial planner. More typically, you’ll want to check in with your financial planner twice a year. Of course, if you have any life changes, it will also be a good time to check in with your financial planner to see if any tweaks or more significant changes to your financial plan are indicated.
How are Financial Planners Paid?
There are a number of different ways in which financial planners are paid. Here are some of the more common options.
If you use a financial planner at a brokerage firm or mutual fund company, you can often get some financial planning services at no charge. The more money you hold at the brokerage firm, the more services you can get at no charge.
Fixed Fees Per Service
Many independent financial planners will provide services on a fixed-fee basis. That is, they will charge you a fixed cost for each of the different aspects of your financial plan with which they provide assistance. Financial planners at brokerage firms also can charge fixed fees for services that are beyond those that are provided at no cost.
Financial planners who also sell products, such as insurance or mutual funds, are often paid based on the products you purchase through them. For example, sellers of insurance are often paid 5% to 15% of the premium on the policies you purchase.
Percentage of Assets
Although it is more common with people who manage your money than with advisors who help you with your financial plan, some financial planners are paid as a percentage of the market value of your The value of things the company owns and amounts it is owed that they manage. This type of compensation is also common for financial planners who work for mutual fund companies.
What’s Best for You
When you get advice from a financial planner, you’ll want to understand the possible biases introduced by the form of their compensation. The vast majority of financial planners are ethical and are focused on your best interests. Nonetheless, you’ll want to be aware of the possibility that the solution proposed by a financial planner is potentially influenced by their compensation. As such, I suggest seeking financial planning advice from people who provide their services either at no charge to you or for a fixed fee.
How Do I Find the Financial Planner that is Best for Me?
One of the best ways to identify possible financial planners is to get recommendations from other financial professionals with whom you already have a relationship, such as an accountant or attorney. If you have friends who are particularly financially savvy, you might ask them for a recommendation. However, you are probably at least as skilled at selecting a financial planner as any friends who are in the same boat as you. And, you are a better judge of a good fit for you than anyone else. Also, I strongly recommend against using a family member as a financial planner. There are almost always too many emotions tied up in family relationships for a family member to be able to advise you on a subject that often requires difficult conversations, such as your finances.
Check their Qualifications
Once you have identified one or more possible financial planners, you’ll want to check their qualifications and whether they have been disciplined. In the US, the most common designation attained by professional financial planners is a Certified Financial Planner, though there are many other designations that indicate expertise, such as a Certified Financial Analyst or a Certified Public Accountant (CPA).
Once you’ve identified the candidates’ professional designations, you’ll want to check to see if there has been any disciplinary action against them. Disciplinary actions are all available on-line. Graeme’s words of wisdom are, “I don’t care how minor the infraction. I wouldn’t go near anyone who has been disciplined. It’s not hard to be an honest advisor, and I wouldn’t trust anyone who has failed at that.”
Interview a Few Financial Planners
You then want to interview the remaining candidates. Again, I’ll provide Graeme’s advice, as I think it is right on target.
- Are they generous with their time?
- Do they listen to you?
- Do they listen to your spouse?
- Are they genuinely curious about your situation and your plans and goals?
- Do they ask questions?
- Or, are they too quick to sell you something?
Your Final Selection
Look for a combination of training and experience. A financial planning designation should be a minimum, along with several years in the industry. They should also be able to refer you to current clients who can recommend their services.”
I suggest that you also think about whether you feel you can develop a good, long-term relationship with the potential advisor. Also, consider whether they garnered your respect during the interview. Starting the process of financial planning on a shaky foundation will be unproductive at best.
 Graeme Hughes is an accredited Financial Planner with 23 years of experience in the financial services industry. During the course of his career he completed hundreds of financial plans and recommended and sold hundreds of millions of dollars of investment products.