FINANCIAL PLANNER
They Can Help Cut Through Information Overload
Finding the Right Financial Planner
by Alexandra Armstrong, CFP CMFC, and Karen Preysnar, CFP CCPS , ,
Although financial planning as a primary profession has been around for more than 30 years, many people still confuse the services of a financial planner with those provided by other financial advisers such as stockbrokers, investment managers, accountants and bankers.
relationship. Economic conditions, tax laws and your goals change, and your plan should be adjusted accordingly. Thus, your choice of the right financial planner is very important, since, if you choose wisely, this person will become your lifetime financial adviser.
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efore helping you to select the right financial planh ner for your situation, let’s first examine why you would seek the services of a financial planner and what you should expect from one.
What’s Involved in Working With a Financial Planner?
Why Would You Seek the Services of a Financial Planner?
Most people are motivated to seek the services of a financial a planner because of a particular life event. The most common motivator is planning for retirement. You might want to retire at a certain age but are uncertain whether you can afford to retire and still maintain your lifestyle. Other common reasons to seek advice from a financial planner include the death of a spouse, an inheritance, a job change, the birth of a child and a marriage or divorce.
Working with a financial planner isn’t a simple process. It requires effort on your part as well as on the planner’s part. You need to provide the planner with a list of your assets and liabilities as well as sources of current income and expenses. You also need to tell your planner about your curFinancial planning is rent insurance coverage (all lifelong process that starts kinds) and estate plan. You provide the planner with other with the creation of financial statements such as last year’s tax return. a written financial plan. To help you define and prioritize your goals, the planner spends some time with you talking about your hopes and dreams. After meeting with you and reviewing all this personal and financial information, the planner prepares a written financial plan. This plan typically will include a taxable-income and cash-flow statement for the next three years as well as a balance sheet. The plan would include an assessment of your current situation and specific recommendations for actions you should take to better achieve your stated financial goals.
What Should You Expect From a Financial Planner?
The key to understanding the role of the financial planner is to understand that financial planning is a lifelong process that starts with the creation of a written financial plan. To prepare a plan, the financial planner looks at your total financial picture, helps you define and prioritize your goals and then works out a written plan to achieve them. Once the financial plan is prepared, the planner reviews it with you to make sure it meets your needs and makes any adjustments necessary. The planner helps you implement the recommendations in the plan. Finally, the planner updates the plan with you regularly to make sure it’s adjusted to reflect changes in economic conditions as well as in your individual circumstances. This regular review process is key to successful financial planning. The initial meetings and written plan are a starting point for what should be a long-term
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Why Can’t I Do My Own Financial Planning Using a Computer Program or One of the Services Available Online?
You might wonder if you need this depth of financial planning. You might think a computerized plan that’s based on your input would be sufficient. Having some kind of financial plan certainly is better than having none. But a computerized plan may not be capable of accurately reflecting your individual circumstances. Further, if you don’t like the answers, you’ll need some guidance for remedial action. For instance, the planner’s projections might indicate that given your current situation, you won’t be able to
achieve your stated goal of retiring at age 55. But the planner could show you that if you curtailed your spending somewhat and saved more, you might be able to retire at age 60. In another example, you might have told your financial planner you have three equally important financial goals: to educate your three children at Ivy League schools, to move to a more expensive house and to retire at age 62. The planner might conclude based on the information provided that you can achieve one or possibly two of these goals but not all three. This would require you to re-examine your goals and to prioritize or modify them. In other words, the planner helps you make informed decisions about the future. An experienced financial planner who has dealt with others with similar circumstances can help you interpret information from a software program so that you can achieve your financial goals. Further, a financial planner can provide you with objective advice. For example, spouses may have different opinions about financial decisions. In these instances the planner can help the couple reach a consensus. We live in an age of information overload. There’s a lot of financial information available in books, magazines, newspapers and on the Internet. In addition friends offer you financial advice based on their own experiences. Some of this information is good, some of it not so good, and it’s almost always contradictory. The job of the financial planner is to help you sort through all this conflicting information and determine what action is appropriate for your particular situation.
Failing that, contact the Financial Planning Association (www.fpanet. org; 1-800-322-4237) for a list of financial planners in your area. Once you have the names of two or three planners, call their offices, ask them to send you some explanatory material about themselves and their firm and make an appointment to meet for an introductory interview. Today, most firms have a website that
will provide information about the firm and how it does business. You can tell a lot about planners from the material they send you or that you read on their websites (is it professional looking or amateurish?). When you review the preliminary material, you should look for answers to the following questions. Some of these questions can be asked before you make the appoint-
How Do You 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.
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ment; others you can reserve for your meeting. What qualifies you to give financial planning advice? The Certified Financial Planner (CFP) designation is the most recognized credential, but the Chartered Financial Consultant (ChFC) and the Personal Financial Specialist (PFS) designations also indicate the planner has passed a comprehensive financial planning examination and has agreed to fulfill continuing education requirements as well as abide by a code of ethics. How long have you been providing financial planning advice to clients? We recommend at least three years’ experience or supervision of that planner by 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 or 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 but may have a minimum fee. Some planners charge a flat fee, while others don’t charge any fee but expect you to compensate them by investing with them. We have also seen planners who charge a percentage of either total assets or net worth. Just make sure you understand how they’ll be compensated. Free advice is worth what you pay for it. Will I be working with the planner recommended to me or someone else at the firm? As with law firms, you may meet with a senior planner but end up being assigned to someone he or she supervises or with a team of planners. At some firms the planning is provided by one financial planner, but the ongoing relationship is with
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Good rapport between the planner and client is essential.
another planner. This can work out quite well, but you should ask to meet with the person you will work with in the future. Do you insist on providing a comprehensive financial plan to all new clients, or could I receive planning advice that focuses on a particular aspect of my financial life, such as retirement planning, or receive an hourly consultation periodically? While we think everyone can benefit from a comprehensive financial plan, you may have a particular problem that must be handled immediately. If so, you need to know whether this kind of segmented advice is available. Do you provide other services such as tax preparation, investment management and estate planning? Some planners provide only financial planning advice and work with other advisers to provide investment management, tax returns and estate plans. Other financial planners provide some or all of these other related services. Some planners aren’t willing to provide financial planning advice unless you agree to turn over your investment management to them.
In other words, you’re both deciding whether you think there’s a good fit. Good rapport between the planner and client is essential to achieve good results. Remember, if this relationship works the way it should, your planner will probably know more about you than just about any other individual. You want to make sure you’re on the same wavelength. Since financial planning is our primary profession, we realize we may be somewhat biased, but we believe everyone at any age can benefit from the advice of a financial planner. When you’re young,you can start out by seeing a planner periodically as you’re building your assets. When you start earning more and have accumulated more assets and responsibilities, then you’ll need a comprehensive look at your financial situation. As you reach your high-earning years and your children are through college, you’ll need more focused retirement planning. Finally, after you retire, you’ll need postretirement planning, which might include working with your adult children or other relatives. As we said, financial planning is truly a lifetime process. The primary task of your financial planner is to make achieving your financial goals easier.
Conclusion
The purpose of the first meeting is to get acquainted. Typically, you shouldn’t expect to receive specific advice at this first meeting because the planner doesn’t have all the relevant information to give you informed answers. After this meeting you’ll decide whether you think this individual is knowledgeable and likable. Do you feel comfortable entrusting your financial future to this person? At the same time, the planner will decide whether he or she can be of assistance to you.
Alexandra Armstrong is a Certified Financial Planner practitioner, registered representative with FSC Securities Corporation, registered broker dealer and member NASD/SIPC, and chairman of Armstrong, MacIntyre & Severns, Inc., a registered investment advisory firm in Washington, D.C. Karen Preysnar, CFP, co-author of this article, is vice president in charge of financial planning at Armstrong, MacIntyre & Severns, Inc., and a registered representative with FSC Securities Corp. She has provided financial planning advice for more than 20 years. Individuals should contact a financial planner, tax adviser or attorney when considering these issues. Ms. Armstrong and Ms. Preysnar cannot answer individual inquiries, but they welcome suggestions for future article topics.