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Selecting a Financial Planner
The Goal Is a Lifelong Relationship
We often see the media using the terms financial adviser and financial planner interchangeably. But there are distinctions between the services each of these professionals provides. A financial adviser’s primary function is to manage your investments. A financial planner takes a more comprehensive view. He looks at your total financial picture, provides a written financial plan and then helps you to achieve financial goals on an ongoing basis.
In this article we’ll review who might benefit from working with a financial planner, what services you should expect to receive, how to find a planner and how to work most effectively with one. Ideally, once you have found a financial planner whom you like and trust, your relationship with the planner will be lifelong.
Why Seek the Advice of a Financial Planner?
Most people seek a financial planner’s services because of a particular life event. The most common one is preparing for retirement. You might want to retire at a certain age but don’t know whether you can afford to do so and maintain your lifestyle. Other motivating life events include the death of a spouse, an inheritance, a job change, birth of a child and a marriage or divorce.
A financial planner’s job is to sit down with you and help define your long- and short-term financial goals. Once you’ve determined where you want to be financially, the planner creates a strategy to help you obtain those goals.
The initial financial plan is the starting point. To be effective, the plan should be regularly reviewed to make sure it’s adjusted for changes in the economy, tax laws and your own circumstances.
What’s Involved in the Financial Planning Process?
Working with a financial planner isn’t a simple process. It requires your effort as well as the planner’s. First you fill out a questionnaire that covers all aspects of your financial life. Topics would include assets and liabilities, how you spend your money, insurance coverage and tax and legal documents. (We find most clients’ main difficulty is providing realistic budget figures.)
Once this information is put together, the planner reviews the financial data with you. At the same time, he or she helps you define and prioritize your goals and talks to you about your long-term hopes and dreams.
After this initial meeting, the planner combines your personal and financial information and prepares a written financial plan that gives you a picture of where you are now and whether your goals are obtainable given your current situation. A typical plan includes a balance sheet as well as a statement of taxable income and cash flow. The cash flow projections should reflect at least the next three years but may cover the rest of your projected life expectancy. The plan includes an assessment of your current assets and recommends specific actions you should take to better achieve your financial goals. This includes recommendations for estate and tax planning and for insurance coverage and asset allocation of investments.
Once the plan is prepared, the planner has another meeting with you to ensure it meets your needs and to make any necessary adjustments. Next, the planner helps you implement the recommendations. Finally, he updates the plan with you regularly to make sure you’re on target to reach your financial goals.
After going through the financial planning process, most people decide to have the planner manage their investments, so this is where the financial adviser and financial planner perform the same role. The difference is that the planner continues to give you advice based on your tax situation and long-term financial planning goals.
Why Can’t I Do This Myself?
You can do some of it yourself. Software programs can be helpful, particularly for retirement and college planning. Certainly, doing this is better than not doing anything. But a computerized plan can do only so much.
For instance, a program might tell you that you can’t retire at 55 as you wanted. But a planner could show you that if you curtailed spending somewhat, rearranged investments and saved more, you might be able to retire sooner rather than later. A planner could also help you understand tax implications of any corrective actions you’re considering.
Further, a planner can provide objective advice. For example, spouses may have different ideas about financial decisions. In these instances, the financial planner can help the couple reach consensus.
We live in an age of information overload. There’s a lot of financial information available in newspapers, magazines, books and on the Internet. In addition, friends offer financial advice based on their own experiences. Some of this information is good and some isn’t, and it’s almost always contradictory. The job of a financial planner is to help you sort through all this conflicting information and determine what action makes sense for you.
How Do I Find a Financial Planner?
The best way is to ask family, friends and other professional advisers for referrals. Ask whether they have worked with or know of a financial planner who has helped people achieve their financial goals. Another source is the Financial Planning Association, which maintains a database of financial planners searchable by ZIP code and area of specialty. Visit its website or call 800-647-6340.
Once you have the names of two or three planners, call their offices and ask for some explanatory material about themselves and their firm. Most firms have a website providing information about the firm. Once you’ve reviewed the material, make an appointment for an introductory interview. This meeting is usually free and is a “get to know you” interview.
What Information Do I Need About a Financial Planner?
When you review the preliminary material, look for answers to the following questions. Some of this information will be available in the material; other questions can be answered in the initial meeting.
• What qualifies you to give financial planning advice? Certified Financial Planner is the best-known educational credential in the financial planning profession, but there are other programs that require the planner to pass a comprehensive financial planning examination, agree to fulfill continuing education requirements and abide by a code of ethics.
• How long have you been providing financial planning advice to clients? We recommend that the planner has had at least three years’ experience working with clients or under the supervision of a more experienced planner.
• Do you specialize in working with a certain kind of client? Some planners require new clients to have a minimum level of income, assets, or both. Many planners specialize in working with a certain type of client (doctor, corporate executive, business owner, widow) and may not want to work with other types of clients.
• How do you charge for your services? Most planners charge an hourly fee for their advice and may have a minimum charge. Some planners charge a flat fee, while others don’t charge one at all but expect to be compensated by your investing through them. We’ve also seen planners charge a percentage of your total assets or net worth. One way or another, preparing a personalized, effective financial plan requires time and effort. Free advice is worth what you pay for it.
• Do I have to receive a comprehensive financial plan, or could I receive advice about retirement planning only or even meet with you on an hourly basis for consultation? Most planners offer all three approaches. After the planner meets with you and helps establish your financial goals, he can tell you what he thinks you need — a comprehensive financial plan or a simpler, more targeted one. He might even think the regular hourly consultation is a good approach for you.
• Do you provide other services besides financial planning, such as tax preparation, investment management and estate planning? Some planners provide only financial planning advice and work with other advisers to provide additional services. Other planners provide some or all of the related services.
What’s the Next Step?
After you meet with the planners, you’ll decide whom you want to continue working with. Just as you select a doctor or lawyer, this person should be experienced, educated, ethical and empathetic. After you work with this planner for a while, he or she will know more about you than most people do, so trust is an integral part of your decision.
If you decide to move forward, typically the planner will provide you with a written contract spelling out what he’ll do for you and what he needs you to provide. He’ll tell you how he’ll charge for his services and how you’ll be billed. The first year together is the hardest because it’s a “getting to know you” period. After this initial year, if the financial planning process is working, you’ll find a certain satisfaction knowing that you’re doing all you can to achieve your financial goals.
Planning at Every Stage
Since we’re financial planners, we admit to being biased. We think everyone can benefit from consulting a financial planner. If you’re young, you could meet with a planner periodically to make sure you’ve started on the right course. When you reach middle age and have accumulated more assets and responsibilities, a comprehensive financial plan may be more appropriate.
As you near retirement age, you can focus on retirement planning. After you retire, you can do some post-retirement planning, which would include working with your adult children.
We hope we’ve made clear that financial planning is a lifetime process. The primary task of your financial planner is to make achieving your financial goals easier.
Alexandra Armstrong is a certified financial planner practitioner and chairman of Armstrong, Fleming & Moore, Inc., a registered investment advisory firm located at 1850 M St. N.W. in Washington, D.C. Securities are offered through Commonwealth Financial Network, a member of FINRA/ SIPC. Investment advisory services are offered through Armstrong, Fleming & Moore, Inc., an SEC-registered investment adviser not affiliated with Commonwealth Financial Network.
Consult your personal financial adviser before making any decisions.
Ms. Armstrong can’t answer individual questions, but she welcomes suggestions for future article topics.
This material has been provided for general informational purposes and does not constitute either tax or legal advice. Investors should consult a tax or legal professional regarding their individual situation. The fifth edition of On Your Own: A Widow’s Passage to Emotional and Financial Well-Being,
co-authored by Alexandra Armstrong and Mary R. Donahue, is available on Amazon. com, Kindle and Nook.