Making the Case for Financial Planners

There are a number of value-added services that can improve your financial future.  In the past we have written about the benefits of engaging a tax advisor and an estate planner. In this post we make the case for financial planners.

We believe financial planning can make a huge impact on people’s lives. That’s why we have dedicated a number of our blog posts to the topic.  However we are aware that many people could benefit from having an expert to drill down further on the covered concepts.  That’s where a financial planner can really help.

In our experience there are five primary areas where a financial planner can add value:

• Cash Flow & Budgeting
• Asset & Debt Management
• Helping Frame Career Risk
• Insurance
• Quarterbacking

Cash Flow & Budgeting

A competent financial planner should be able to model your spending requirements to create a budget that helps you achieve your financial objectives. This can include determining your ability to afford to buy a house, fund your kids’ college education and fund your retirement. We have found that many people in our target market are actually more interested in their ability to take an extended amount of time off to start a company or travel than fund their retirement. Again, a financial planner can help you create a plan that might make this goal possible.

Your planner should also help you choose the best financial instruments to achieve each of your objectives. For example, should you contribute to your 401(k) or IRA?  Should you use a 529 plan or are you better off with a taxable account to fund your kids’ education?  Planners can be particularly helpful if you face complex issues like having to deal with serious health care issues or support family members outside your nuclear family. A planner can be especially valuable as a sounding board when you’re not quite sure what’s the best path to follow.

Asset & Debt Management

In some cases, individuals are faced with fairly large decisions about particular assets or debt issues.  With significant tax issues, there is no question that a qualified accountant can be the best advisor (see 11 Questions to Ask When You Choose a Tax Accountant).  That being said,  financial planners often have creative ideas about different ways you can approach key decisions around disposing assets and taking on and paying down debt.  Having a professional with relevant experience can be particularly valuable, since most individuals have seldom dealt with these kinds of complex decisions.

As we have pointed out in many of our posts, the tradeoff between liquidity and tax savings is not often clear. Having an independent party objectively review your situation can often add quite a bit of clarity.

Helping Frame Career Risk

The impact of making the right career decision should swamp the benefit from making better investment decisions. Just as is the case with investments, higher risk can often lead to higher return when it comes to job decisions.  Sometimes the biggest financial mistakes people make are decisions not to take risk with their careers.  Financial planners can often frame how your career progress might impact your long term goals.  Having someone familiar with your current financial situation can provide that final confidence needed to take the riskier job that can later pay off in a big way and change your life.

Insurance

Insurance grows in importance as you age and your family responsibilities increase. Most people need a sounding board when determining how much term life insurance to purchase, weighing how long a policy should be, and in choosing from whom to purchase it. You might also need help to evaluate whether health care insurance, disability insurance, umbrella liability policies or other kinds of protection are appropriate depending on your occupation and risks.

Financial planners will not only help with the decision, but they can also help you find the best suppliers of each product.  Of course, with insurance products you must remain vigilant.  In no case should you work with a planner who receives compensation from the products she recommends due to the conflict of interest.

Quarterbacking

Numerous clients who have benefited greatly from their companies having been acquired or gone public have told us they are in great need of someone to play the role of financial concierge. By this they mean someone who can manage the logistics of sharing documents among tax advisors, estate planners and their investment managers. They would prefer to hire the best-in-class professional for each service and use a third-party to coordinate, where necessary, to make sure everyone is on the same page. A financial planner could be the ideal person to play this role.

Look for the CFP Credential

The American education system devotes little time or resources to educate kids on how to manage their finances when they reach adulthood. Many parents lack the expertise or time to fill the gap. So it’s really not all that surprising how few of us are naturally gifted at managing our money.

The profession of financial planning has grown significantly over the last two decades, both because of this lack of education and the growing complexity of our financial lives. There are now several college degree programs around the country dedicated to training planners. But more importantly there is a professional certification to distinguish people who are well trained in the profession: the Certified Financial Planner or CFP.

The certification is awarded by the CFP Board which maintains professional standards, oversees continuing education requirements and can discipline and strip holders of their credentials among other responsibilities. In order to earn your CFP you must pass an exam to prove proficiency, complete a college-level program of study in personal financial planning or an accepted equivalent (including completion of a financial plan development course registered with CFP), have three years of professional experience in the financial planning process or two years of apprenticeship experience that meets additional requirements and have earned a bachelor’s degree (or higher) from a regionally-accredited college or university.

We highly recommend that you only work with a planner who has earned the CFP credential.

Be an Educated Consumer

We believe that developing a comprehensive financial plan can bring with it a lot of confidence and peace of mind and serve as a framework for pursuing your financial future. Complications will arise and plans will have to change, especially as you add complexity (home, children, additional insurance). Helping you build that initial plan and/or deal with those inevitable complexities are great points in time to engage with a CFP.

The logical way to pay for a financial planner is by the hour. That’s how other episodic financial professionals like tax advisors and estate planners get paid.  Look for a planner that charges an hourly fee upon initial engagement and an annual retainer to handle the numerous questions that might arise throughout the year. This model can be especially rewarding for a planner who builds a strong practice in the area of quarterbacking.

It usually makes sense to start the process of finding a great planner by asking friends for recommendations. Once you have a planner in mind ask her for a few additional references. Competent, quality planners will be happy to comply.

Related links:

CFP Board with links to finding a planner in your area