Whenever I surf television cable news channels, I can’t help but notice the plethora of ads for financial planning. Some of them sound compelling, even to me. I often find myself thinking, “Dang, that’s exactly what we do.”
Then I notice the incongruency, because in almost every case, the ads are being run by companies that sell financial products or are owned by huge insurance companies.
One promises their advisors are financial experts who will see the big picture of your finances and dreams to help you get what you want out of life. They will create a personalized financial plan that shows all the possibilities and strategies tailored to your goals, and they will protect you now and in the future from the unexpected.
This sounds great, but a closer examination shows this company specializes in selling life insurance and mutual funds, making most of its revenue from the sale of these products. There is a high probability their “advisors” and “financial experts” will recommend a “financial plan” that includes a variety of life insurance, mutual funds, private REITS, and annuity products, all of which typically pay lucrative commissions. These “advisors” have a significant conflict of interest, since the bulk of their personal income comes from commissions.
Some discount brokerage firms and other financial service companies also advertise “financial planning.” Yet the services they offer, like the following examples, are often not comprehensive financial planning but only components of it.
- A review of your investment holdings. This can be little more than a pitch to sell you financial products that pay juicy commissions to the “investment advisors.” Even when it is done by a fiduciary investment advisor who puts clients’ interests first, investment planning is not synonymous with financial planning. Comprehensive financial planning goes beyond someone’s investment portfolio to deal with assets such as real estate, business ownership, and career skills, helping clients use all their assets toward achieving their life goals.
- Insurance planning. Again, this is often a sales pitch for insurance products. When done as part of comprehensive financial planning, it includes an analysis of existing insurance policies and strategies for avoiding and reducing risk that do not necessarily involve buying insurance and often encompass dropping unneeded insurance.
- Tax planning. Full financial planning goes beyond tax-advantaged investments or immediate strategies to reduce this year’s income taxes. It considers longer term issues around capital gains taxes and tax deferral, as well as gift, inheritance, and estate taxes.
- Retirement planning. This important aspect of comprehensive financial planning goes beyond stuffing as much as you can into a retirement account. According to Tim Maurer, Head of Wealth Management for Triad Financial Advisors, in an email newsletter from February 20, 2022, it is also about “finding a career that you can enjoy indefinitely so that you are always employable, … and saving effectively for financial independence, while also allocating dollars to enjoying life today….”
One of my constant themes is warning consumers to learn the differences between financial planning, investment advice, and the sale of financial products. When you want real, comprehensive financial planning, my advice is to start at NAPFA.org, the site for the National Association of Personal Financial Advisors, whose members are fee-only financial planners. Better yet, look for a financial life planner at KinderInstitute.com or the FinancialTherapyAssociation.org.
As you are researching, be sure to evaluate any firm’s website and marketing information with your skeptic’s hat securely in place. Keep this one caveat in mind: The fact that a company advertises “financial planning” is no guarantee that financial planning is actually what it does.