Does developing your own financial plans seem like an overwhelming task? Help is at hand! Professional financial planners will guide you through establishing goals, plan preparation, and the increasingly complex maze of financial products and investment opportunities. This field has experienced tremendous growth, and there are nowmore than 200,000 financial planners in the United States.Financial planners offer a wide range of services, including preparing comprehensive financial plans that evaluate a client’s total personal financial situation or abbreviated plans focusing on a specific concern, such as managing a client’s assets and investments and retirement planning. Where once only the wealthy used professionalplanners, now financial firms such as H&R Block’s Financial Advisors and the Personal Advisors of Ameriprise Financial compete for the business of middle-income people as well Why do people turn to financial advisors? A recent survey indicated that retirement needs motivated 50%, while 23% were unhappy with the results of trying to manage their own finances. Estate and inheritance planning caused another 13% to seek help; saving for college and tax issues were also mentioned as reasons.
Types of Planners
Most financial planners fall into one of two categories based on how they are paid: commissions or fees. Commission-based planners earn commissions on the financial products they sell, whereas fee-only planners charge fees based on the complexity of the plan they prepare. Many financial planners take a hybrid approach and charge fees and collect commissions on products they sell, offering lower fees if you make product transactions through them.
Insurance salespeople and securities brokers who continue to sell the same financial products (life insurance, stocks, bonds, mutual funds, and annuities) often now call themselves “financial planners.” Other advisors work for large, established financial institutions that recognize the enormous potential in the field and compete with the best financial planners. Still others work in small firms, promising high-quality advice for a flat fee or an hourly rate. Regardless of their affiliation, full-service financial planners help their clients articulate their long- and short-term financial goals, systematically plan for their financial needs, and help implement various aspects of the plans. Exhibit 1.9 provides a guide to some of the different planning designations. In addition to one-on-one financial planning services, some institutions offer computerized financial plans. Merrill Lynch, Ameriprise Financial, T. Rowe Price, and other major investment firms provide these computerized plans on the Internet to help clients develop plans to save for college or retirement, reduce taxes, or restructure investment portfolios.
Types of Planners
Most financial planners fall into one of two categories based on how they are paid: commissions or fees. Commission-based planners earn commissions on the financial products they sell, whereas fee-only planners charge fees based on the complexity of the plan they prepare. Many financial planners take a hybrid approach and charge fees and collect commissions on products they sell, offering lower fees if you make product transactions through them.
Insurance salespeople and securities brokers who continue to sell the same financial products (life insurance, stocks, bonds, mutual funds, and annuities) often now call themselves “financial planners.” Other advisors work for large, established financial institutions that recognize the enormous potential in the field and compete with the best financial planners. Still others work in small firms, promising high-quality advice for a flat fee or an hourly rate. Regardless of their affiliation, full-service financial planners help their clients articulate their long- and short-term financial goals, systematically plan for their financial needs, and help implement various aspects of the plans. Exhibit 1.9 provides a guide to some of the different planning designations. In addition to one-on-one financial planning services, some institutions offer computerized financial plans. Merrill Lynch, Ameriprise Financial, T. Rowe Price, and other major investment firms provide these computerized plans on the Internet to help clients develop plans to save for college or retirement, reduce taxes, or restructure investment portfolios.
Personal finance programs such as Quicken and Microsoft Money also have a financial planning component that can help you set a path to your goals and do tax and retirement planning. Although these plans are relatively inexpensive or even free, they are somewhat impersonal. However, they are a good solution for those who need help getting started and for do-it-yourself planners who want some guidance. The cost of financial planning services depends on the type of planner, the complexity of your financial situation, and the services you want. The cost may be well worth the benefits, especially for people who have neither the time, inclination, discipline, nor expertise to plan on their own. Remember, however, that the best advice is worthless if you’re not willing to change your financial habits.
Choosing a Financial Planner
Planners who have completed the required course of study and earned the Certified Financial Planner® (CFP®) or Chartered Financial Consultant (ChFC) designation are often a better choice than the many self-proclaimed financial planners. Of course, CPAs, attorneys, investment managers, and other professionals without such certifications in many instances do provide sound financial planning advice. Unlike accounting and law, the field is still largely unregulated, and almost anyone can call himself or herself a financial planner. Most financial planners are honest and reputable, but there have been cases of fraudulent practice. So it’s critical to thoroughly check out a potential financial advisor and preferably to interview two or three.
The way a planner is paid commissions, fees, or both should be one of your major concerns. Obviously, you need to be aware of potential conflicts of interest when using a planner with ties to a brokerage firm, insurance company, or bank. Many planners now provide clients with disclosure forms outlining fees and commissions for various transactions. In addition to asking questions of the planner, you should also check with your state securities department and the Securities and Exchange Commission (for planners registered to sell securities). Ask if the planner has any pending lawsuits, complaints by state or federal regulators, personal bankruptcies, or convictions for investment-related crimes. However, even these agencies may not have accurate or current information; simply being properly registered and having no record of disciplinary actions doesn’t guarantee that an advisor’s track record is good. You may also want to research the planner’s reputation within the local financial community. Clearly, you should do your homework before engaging the services of a professional financial planner.
Choosing a Financial Planner
Planners who have completed the required course of study and earned the Certified Financial Planner® (CFP®) or Chartered Financial Consultant (ChFC) designation are often a better choice than the many self-proclaimed financial planners. Of course, CPAs, attorneys, investment managers, and other professionals without such certifications in many instances do provide sound financial planning advice. Unlike accounting and law, the field is still largely unregulated, and almost anyone can call himself or herself a financial planner. Most financial planners are honest and reputable, but there have been cases of fraudulent practice. So it’s critical to thoroughly check out a potential financial advisor and preferably to interview two or three.
The way a planner is paid commissions, fees, or both should be one of your major concerns. Obviously, you need to be aware of potential conflicts of interest when using a planner with ties to a brokerage firm, insurance company, or bank. Many planners now provide clients with disclosure forms outlining fees and commissions for various transactions. In addition to asking questions of the planner, you should also check with your state securities department and the Securities and Exchange Commission (for planners registered to sell securities). Ask if the planner has any pending lawsuits, complaints by state or federal regulators, personal bankruptcies, or convictions for investment-related crimes. However, even these agencies may not have accurate or current information; simply being properly registered and having no record of disciplinary actions doesn’t guarantee that an advisor’s track record is good. You may also want to research the planner’s reputation within the local financial community. Clearly, you should do your homework before engaging the services of a professional financial planner.
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