Ask almost anyone about financial planning, and you’ll probably get different answers from each person about what it is and what it can do. Some will say it’s best for taxes; others will say it’s best for portfolio investments or retirement funding. You might hear that it’s only for the rich, or that it’s just an expensive luxury that goes along with having money in the first place. Some will say it’s good for nothing, and it’s a waste of money and time.
Is it possible for all these things to be true at once?
Believe it or not, yes.
Let me back up and explain what I mean. We all have financial goals. Sometimes these goals are achievable without help or guidance from third parties. If that’s the case, then congratulations! But that’s also exceedingly rare. Financial planning, especially with larger portfolios or equity, is often a fulltime job. You can’t just make a dynamite portfolio over the weekend, or pull an all-nighter surrounded by pizza boxes and make your retirement suddenly work.
Financial planners are more than stock analysts or money managers. We don’t just want to watch your money and hope for the best. We’re interested in helping move it optimally and putting it where it’ll do the most good for your goals. If there’s one thing we care about more than anything else, it’s ensuring the decisions we make for your future pay off exactly how you’d like them to. After all, you only get to retire once; you can’t just redo it.
That said, we do consult on stocks. We do help illuminate the differences between investing in a bull and a bear market. We educate ourselves for years on these things so our clients don’t have to. You’re busy; you’re out there working so you have money to invest at all. We don’t let you risk everything or make overly emotional investments without good guidance first.
Do you need a financial planner? No. The great thing about personal finance is that you can do it yourself. Only hire a financial advisor if you think he or she is providing value.
Let’s bring up the topic everyone always wants to know first: the money.
It’s true, hiring a financial planner or advisor is itself an investment. If we’re doing it right, we’re retained for years to help steer the ship. Costs of course vary from advisor to advisor, rates or services or specialties also vary, and some are fee-based, fee-only, or commission only or a combination of fees and commissions. A good rule of thumb about payment is broken down like this:
- Annual Retainer—Financial planners are usually paid per year for financial plans. Fees can range from hundreds to thousands.
- Percentage of Invested Assets—You’re charged a flat percentage of your total account balance. The more assets you have invested, the larger the financial advisor’s cut (although some advisors have a fee structure with a percentage that goes down with increasing assets after a certain threshold).
- Commissions --- If insurance products are part of the plan, a commission will be paid to the insurance agent that writes the contract.
You should always know how your advisor or planner is compensated. Each way has merits and drawbacks. These details should be forthcoming. If someone tells you that they “work for free”, don’t believe it. You can’t stay in business and not earn money. The important thing is that a planner or advisor needs to bring VALUE to the client that is greater than their cost. Investments and portfolios should be uniquely tailored to you personally rather than sold as a package for only the financial benefit of the advisor. It’s also a good sign if your financial advisor is under a fiduciary duty, the highest standard for an advisor under the law. This is for registered advisors and binds them to act in your best interests.
You’ll also see many different types of financial advisors with different fees and services. For the most part, what they are able to offer depends on their license(s). I tell my clients that I wear 3 hats. I am licensed to sell insurance products, I am also a registered representative of a broker/dealer and I am a Investment advisor representative of a Registered Investment Advisor. The first 2 hats are commission based and the 3rd is fee based. As I go through the planning for the client, they will have a choice of what type of solutions they would like to choose and they know how I am compensated for each one. Different client will choose different solutions based on their situation. The important part is educating the client and letting them choose what’s best for them.
There are also digital or robo-advisors, or machine intelligence-based unit programs that will churn out basic investment and portfolio guidance to anyone. They can be very cost efficient if you only need a portfolio or something simple.
While these programs have certainly come a long way, it’s very hard to beat the personalized skill and relationship of a human advisor, though they cost more. A computer model is only as good as the input of the data. There is a logic concept called GIGO (Garbage In Garbage Out). If you don’t know how to answer the questions correctly…well, you get the picture.
So with the cost out of the way, we turn back to our original question: Should a financial advisor be part of your strategy?
Here’s how to know if you might benefit from one.
First and foremost, you don’t know what you’re doing. If you’ve looked at balance sheets, investment profiles, stocks, or anything financial and come up short, thinking it all reads like gibberish, then a financial advisor just might turn out to be your new best friend. You can’t make sound financial decisions under total confusion and learning about all these things on your own can take years, especially to master it.
If your finances are disorganized and a jumble and you have no idea where they stand or how to achieve what you want, then a financial advisor can help rectify this problem. Building a strategy going forward is essential; Googling “financial planning” and just hoping for the best while winging it isn’t going to ensure any kind of financial viability in the near term, let alone the far future.
If you don’t feel like it or feel like a financial planner would do a better job than you would, then that is another clear sign. It isn’t unusual or wrong to see balance sheets and numbers and just not want to dive in. There’s a lot there, and you’re busy. It might just give you a headache to think through it. If you’re baffled, frustrated, or just plain bored looking at financial documents or stock portfolios, then that might be the clearest sign that unemotional, third-party help could rescue you. Maybe you just want an expert to handle it.
Here’s what we offer, broken down:
- Protection first planning (helping you plan for the unexpected)
- Expertly managing a portfolio, diversified
- Developing long-term strategies and plans for your future
- Communication with clients and keeping them abreast of changes in the market and the economy, as well as their personal finances
- Detailed research of different markets
- Personalized plans tailored to each client
- Helping prepare you for an upcoming big financial change
- Making lucrative investment suggestions
- Helping protect your family financially
- Giving you peace of mind and reducing stress
So while no one needs a financial planner, the benefits that it can bring often prove incalculable, especially to your long-term goals. Markets and our world provide any number of unexpected hand grenades that can derail your carefully laid plans for your future (a global COVID pandemic springs to mind). Setting it and forgetting it for long periods of time just don’t cut it like they used to. Sailing the ship on your own has definite drawbacks.
No matter how much studying and learning you do about markets and stocks, you’ll never catch up to the combined knowledge of Wall Street or larger investment firms. If your goal is to create a robust and diversified stock portfolio, you’re going to want a financial advisor to ensure you don’t waste your money or your time competing against giants that have massive monetary and team power advantages over the average investor.
If you’re concerned for your retirement, and especially about guarding yourself and your structured withdrawals from retirement accounts, then a planner can help show a larger picture for what to expect and what works. If, for example, you have a set amount flowing into retirement accounts each month, but you get a raise or a new source of income, a financial planner can help restructure those amounts as a percentage to better match your overall equity. Percentages are often more helpful for financial figures than absolute dollars.
We also help gauge your level of risk tolerance and figure out what investments complement and match your desired threshold. If you have a windfall and decide you want to increase your gamble a little, then we can structure that along with a restructured risk balance. If you inherit money you weren’t expecting and decide you want to try and use that inheritance to make more money, albeit safely, then we can find fixed investments that best match your vision for stable, reliable returns.
If your main concern is your taxes (a very common issue), a financial advisor can help manage that as well. Numerous factors can affect tax rate, ranging from income to deductions to assets and property. A delicate axis exists between figuring out your financial situation in relation to your desired one. If you’re stuck in “investor paralysis” and can’t decide where to put your money, be it in a Roth or a traditional IRA, a third-party planner can help move that process along while fixing the inaction.
A financial planner can be compared to a nutritional dietician or a food planner. It’s not just about the nutrients or the plan itself, or even the calories—it’s about sticking to whatever plan is best. Sometimes you just need motivational counseling that keeps you on track with your goals and helps prevent atrophy. Did you stick to your budget this month? Did you allocate the same amount of money to your retirement as you pledged to? How are your stocks doing?
Our clients succeed when we are vigilant and watch everything they do carefully. We thrive on long-term, clear-cut objectives that are sustainable and guided by facts and logic over emotion or spur-of-the-moment decision making. It’s far easier to return an impulse purchase from Walmart than to recover from an impulse purchase of risky stock. So many people think they’ll just do their financial planning themselves. A noble goal, but often this doesn’t come to fruition. With a financial advisor, it can.
Your investments, and your financial future, are worth more than gambles. They’re worth far more than Google can tell you with some cursory searching, and they might ensure you have a greater quality of life than your retiring parents or grandparents. They can help guide you as you build and maintain generational wealth and give you peace of mind while managing your portfolio. They might even stop you from investing in Enron or Circuit City (jury’s out on GameStop, however).
A planner will work out goals, objectives, and opportunities with you based on what you want and what you’re willing to do to get it. We take your investments seriously; those of us bound by the fiduciary duty in the law treat it as a calling and as a genuine relationship. Your success is our success, and vice versa.
In short, you need a financial advisor if you want one.
