“I Don’t Know What a Financial Planner Does.”

by | Cash Flow, Weekly Column


DoctorMost people have a family physician. Many, especially business owners, also have an accountant and an attorney. Fewer, however, have financial planners. Some of the reasons they give include:

• I am not sure what a financial planner does.

• I don’t know how to find a competent financial planner.

• I don’t have enough money to need financial planning.

• I can or should be able to do my own financial planning.

• I don’t want to give up control of my financial affairs.

• I will not receive value for my money.

• I can’t afford a financial planner.

Most of these reasons can be summed up this way: “I don’t think I would get sufficient value for what I would have to pay a financial planner.”

This is certainly a valid concern. Some of it stems from a lack of knowledge about what a financial planner does.

A common misunderstanding is that financial planners only manage investments. Many people believe they can and should do this themselves. Certainly, there are countless websites, software programs, and books that will tell you how to wisely save, invest, and spend your money. Most people, however, would rather spend their time doing what they love or want to do instead of becoming investment specialists.

In addition, investing is only one aspect of financial planning. True financial planners work with clients in seven areas: retirement planning, investments, estate planning, tax strategies, asset protection, cash flow planning, and financial coaching. Very few people are competent at addressing all these issues, any more than most people can be their own physicians.

Another legitimate fear is that the planner will not be competent. This is particularly a concern because anyone can use the term “financial planner” regardless of whether they are actually engaged in financial planning. To represent yourself as a lawyer, physician, or therapist without holding the appropriate licenses is a crime. That is not the case with financial planning.

Finding a competent planner, therefore, requires some research. One criteria is to look forcfp logo the CFP® designation, your assurance that the planner has completed the courses required for national certification. This is no guarantee that you’ve found a practicing financial planner, but is at least an indication of a certain level of training.

A second suggestion is to ask for references from friends who may have financial planners, from attorneys, or from accountants who do not also offer financial planning services. Internet sources include the National Association of Personal Financial Advisors (www.napfa.org) and the Financial Planning Association (www.fpanet.org).

A crucial question to ask as you interview planners is how they are compensated. My bias is toward fee-only planners, who earn their income from direct fees to clients rather than through commissions on investment or insurance products they sell. This means they will make investment decisions based on the best potential return for you, not the best immediate return for themselves.

Good financial planning, like many other professional services, costs money, at least initially. It means laying bare your financial soul, which is harder for many people than physically undressing for their doctors. It means working in partnership with your spouse. It requires your commitment to collaborate with the financial planner.

Making such a commitment can be a wise long-term investment, in much the same way regular visits to your doctor can help maintain your health. The purpose of financial planning is to help you identify your life goals, then manage your resources in the best way to help you reach those goals. This goes far beyond helping you achieve financial success. It can help you to lead a more satisfying and fulfilling life.

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