A financial planner is a professional who helps individuals create and reach their short and long term financial goals. All financial planners are financial advisors (but all financial advisors are not necessarily financial planners. Through a process of assessing an individual’s financial situation and goals, a financial planner creates a personalized plan to meet these future expectations. They work with you so that you can learn from them and advise you in your decision-making process. These professionals may specialize in different areas of financial planning or have knowledge in multiple categories such as estate planning, portfolio management and asset allocation, tax strategy, and retirement planning.
Do I Need a Financial Planner?
This decision varies between each individual and there is no right decision, but generally if someone has a complicated financial situation or is seeking financial advice regarding multiple financial questions, they should definitely consider working with a financial planner.
Even if your financial situation is not complicated, pretty much everyone can benefit from having a financial planner. These professionals can offer insight to individuals from an objective, third-person perspective, helping you reach your goals in a more efficient, less stressful manner.
How do I Pick a Financial Planner?
There are a number of things to consider when picking a financial planner such as credentials, specialization, and financial goals.
When finding a financial planner, look for one that either has or is in the process of obtaining the CFP designation. CFP stands for “Certified Financial Planner” and indicates that their financial planning meets certain educational and ethical standards. Some might believe that the term financial planner and CFP can be used interchangeably, but the term “financial planner” does not actually mean the individual has credentials, training, or experience to effectively help you. Almost anyone can hold himself out as a financial planner nowadays, after all.
Additionally, one should consider conducting research into the different types of financial planners there are. While planners may specialize in different categories (i.e. retirement planning, investment management, estate planning, etc.), there are also different types that work based off commission or fees. Fee-only planners could charge hourly rates or flat fees. They also include asset-based fees such as AUM (assets under management). There are also fee-based planners who combine commissions and fees. Commissions can be obtained from selling products such as life insurance or certain mutual funds. Knowledge of the types of fees can help you pick a financial planner that best fits your needs.
Another factor to consider in picking a financial planner is whether they are a fiduciary. Financial planners that have fiduciary duty are legally required to make decisions that are in the client’s best interest. This means that instead of giving you advice that gives them the most profit, they will prioritize the client’s benefits. Believe it or not, not all people who claim to be financial planners are required to be fiduciaries!
In the end, the deciding factor on picking a financial planner is whether you work well together and you feel you can trust the advice you’re given. In order to determine whether the planner suits your needs and personality, you should consider scheduling a consultation so that you can learn more about the advisor and decide if you’re a good match for each other.