Using/Choosing a Financial Planner
There are a lot of good resources for what to look for when choosing a financial planner. I detail a few that I recommend below. However, asking how to choose a planner is in many cases putting the cart before the horse. Most clients I encounter have to first understand why they should have a financial planner in the first place.
Run a google search for "how to choose a financial planner" and you'll get all kinds of results, many of which draw on the same material. Going this route is fine for some folks, and I'd recommend results number 1 and 3 which are NAPFA's excellent "How to Choose A Financial Planner - Tough Questions to Ask" and the Certified Financial Planner Board of Standards, Inc.'s "How to Choose a Planner". If you have already accepted you need or want a financial planner's help then you are on the right track.
Usually before I get there though, my primary problem is more often convincing my nonfinancial clients (success/career coaching clients) to consider working with me or another financial planner. Money, it seems, is still one of those subjects that people either (a) don't talk about or (b) think they're good at when they are not. My #1 comment to these clients is, "You don't drill your own teeth - you go to the dentist." My point is to seek professional trained help when needed. "But that's expensive." Yes, it can be - but the benefits far outweigh the cost in 99% of the cases I've seen. Consider returning 1% annually more over your lifetime would easily pay for any services of even the most wealth managers.
As students of financial planning we learn first and foremost that financial planning is *not* just about investments, yet invariably the first question I'm asked at social functions is always something about "hot stock picks". Despite the beating we all took in 2000 we're all still looking for the next Google (yes, I missed it too) and with good reason. Disability insurance just is not as sexy as 300% IPO returns.
So, what's my point? Basically, everyone can benefit from interfacing at least in some manner with a financial planner - and yes, you will have to pay for that service. Most of clients I encounter simply don't have the time or desire to educate themselves to the level of a financial professional and that is perfectly fine. The recent move of major investment trustees to lifestyle funds is proof that this argument at least holds some water, as Paul B. Farrell notes for Marketwatch:
For all you keep-it-simple investors, the new "lifestyle" funds are a perfect solution in effect, your entire portfolio in one fund. Also known as "target retirement" funds, all you have to do is pick the date you intend to retire, invest in the fund and add money regularly until retirement.
My experience has been that almost all of my clients benefit at the very least with stress reduction once they've gotten their money on track. Since I have a success-oriented approach I look at financial planning as a piece in the puzzle. Getting those pesky money issues out of the way leads to less stress and more time to worry about success in other areas of life like family and career.
Bottom line is get out there and do something today. Using/choosing a financial planner may be a critical step in allowing you to do that, so choose wisely and choose soon.
"So, why does Generation X seem to be so much better prepared financially than their parents?" asks Lisa Predella in Fidelity Investor's Weekly. Chalk some of the credit up to sites like our own pfblog.com says Jeffrey Carney, president of Fidelity Personal Investments, because "[Gen-Xers ... Read
Long Term Care Insurance gets the same roll of the eyes that Disability Insurance gets when I bring it up to clients. Everyone is most concerned about Life Insurance first, then the other types. The statistics I show them make them think otherwise. Indeed, "too ... Read
"Consider returning 1% annually more over your lifetime would easily pay for any services of even the most wealth managers."
To steal the title from your other post: "The BS starts here."
How much do you charge for an initial financial plan? How much per year thereafter? I loved your chart in "Why 1% Matters." Good point, soundly made. But maybe you should do a chart comparing Bob's $1000 annual savings against "Dave" -- who in addition to saving $1000 per year, also invested the money Bob wasted on a financial planner.
Assume a financial planner charges $1000 up front and $500 recurring. The planner helps Bob earn a higher rate. He gets 10% while Dave only earns 9%. My back of the envelope math puts Dave ahead by over $75,000 after 40 years. Even with the lower rate.
Any adult of average intelligence can do their own planning. It is not that complex. Financial planners are an unnecessary expense, at best. At worst, they are villainous predators.
OK, replying to my own post...
Financial planners might be right for some people. If comparing the various retirement plans and insurance options makes you cross-eyed and is causing you to lose sleep... you probably stumbled onto this site by accident! ;)
If you truly need a planner, at least make sure you find someone legit. Avoid the big firms with the non-stop TV ads. You'll get a salesman, not an adviser.
Try your CPA first. Don't be surprised if he can answer most of the questions you thought required a planner. If he can't answer them, ask him to reccomend a CFP. (If he can't do that, find a new CPA.)
Spend a couple hours on Google. Research the different types of planners. You want a fee-only adviser certified by a strict association. Most of the associations have websites where you can check a member's status. (See napfa.org for a good place to start.)
If you find someone who looks promising, return to Google. Search for the firm or planner's name. Look for customer complaints, lawsuits, etc.
I wouldn't consider anyone with fewer than 7 years experience. Ask for (and contact) references. Do this all before you sign or pay anything.
Boy, sounds like a lot of work! Might be easier just to learn how to handle your own damn money. ;)
"Nobody" - thanks for the comments, I believe we are reaching the same conclusion.
I am a fee-only planner with just about 2 years experience and have just finished my education for the CFP. All told this education will cost me in excess of $8000. That's not including trade membership fees, etc. You correctly note napfa.org which I mentioned in paragraph two. I agree, the no-fee road is the best bet. I don't believe in being paid commissions for financial planning. More often than not the people who do so are really not doing any favors to their clients (with the possible exception of insurance brokers).
However, I do firmly assert that working with a professional is far better than throwing darts at your 401(k) election form and ending up with 100% of your money "diversified" into 8 funds that track the S&P 500. This is the scenario I see most often. Second most often is 20-somethings who don't put *any* money into their 401(k).
So, you're correct, I think the audience of this site will likely be able to invest their own money with better results than 90% of the rest of the world. However, it's also worth noting that I employ my own CPA as a financial planner in order to consider other points of view once my analysis is completed.
When I speak of convincing people they need a financial planner, I'm talking about the folks who really do need the basic help. First and foremost I take my fiduciary duties very seriously. That some professionals have tarnished the term "financial planner" is unfortunate, but it hardly casts a light on most of us.
Nonetheless, the points are taken. Thanks for reading.
Another thought: "the investors greatest enemy is likely to be himself" (Benjamin Graham). Even if you are financially savvy, you are not objective with your own money. On paper things look fine, but when you put your hard-earned coin on the line little things like fear, hope & greed get in the way.
When you DON'T have a financial advisor, you may be penny-wise and pound-foolish. Consider the small cost you pay to a reputable advisor as an insurance premium to protect your portfolio from yourself! It's a "Don't Screw Up Your Financial Future" insurance policy. How much is that worth?
JC
JC - Thanks. That's a very precise summary of what I was trying to say. Well put. I might use that in a later post.
Financial planners ARE NOT NECESSARY.....you can educate yourself and learn everything you need to do to on your own. In my case, I have done the following on my own all without the help of a financial advisor/planner/consultant/whatever else you wanna call em. If you can read you can learn......
1. Max out 401k
2. Set up savings cushion of 6 months for emergency
3. Researched and purchased Life and Disability Insurance
4. Purchased 4 Vanguard Index Funds to diversify my retirement portfolio. I'm not a stock-picking genious therefore I don't try and gamble my retirement.
5. Set up 529 account for daughter
6. Hired lawyer to set up will/living will/power of attorney and related issues.
7. Have $0 in credit card debt and pay off monthly credit card bill in full...(don't need a CFA to tell me this.....isn't this common sense knowledge by now)
8. Bought and sold own home using FSBO website and paid $500 for MLS listing and sold home in less than 1 week for $20,000 over asking price. Saved myself a ton of commission for what??? Color flyers and showing my home for open house????.....give me a break!
9. Max out IRA every year
All of this I learned to do on my own. I've read a few books on personal finance and life management I borrowed from my friend and read Money Magazine and Kiplinger's at the local library when I take my kids there to read. Didn't even have to pay for the books......If you hate reading and/or learning or lack the discipline to learn something practical to help with everyday life issues then go ahead and pay those guys thousands of dollars throughout your lifetime, I'd rather use that money on my family. If this sounds bitter it's because I am. About a year ago I went to see a Financial Planner upon my wife's incessant nagging and he tried to charge me $950 at the end for everything I already had been doing. Towards the end of our consultation, he was so desperate to try and find something I didn't know that he recommended I change my air filter on my furnace every 3 months to improve energy efficiency.....what a joke he was!
JYK - Thanks for the comments. I think I've tried to convey all along that it's not impossible for someone like yourself to do these things. Fact is, however, that most people don't do them. All you have to do is look at savings rates in America to see this. You should be applauded for your efforts, but you should also know you are a significant minority. I'd also comment that coordination across your various investments would likely yield higher returns than index funds. My fully diversified portfolio returned 30%+ last year with just about the same level of risk as the S&P 500. I would also not assume similar experiences with all future home sales. This market is hardly typical.
Again, and I've said this three times in the last few days to various posters, it's a shame when "financial planners" seem to behave so unethically. CFPs are held by a code of ethics that would not allow such conduct as we are bound to act in the client's best interest as their fiduciary.
I wish you luck and continued success.
JYK,
Sounds like you're doing a good job. However you will never be as objective about your money as a competent professional. The fact is: you don't know what you don't know.
Some people do their own dentistry too! But I wouldn't advise it...
If you don't want objective advice, then knock yourself out. And have fun while you're at it! Personally, I consider my financial future too important to skimp on the help.
JC
