A financial planner can be an invaluable advisor to you as you work towards your financial goals and dreams. A good financial advisor can act as the quarterback for your team of advisors, working with your tax advisor, insurance agent, etc. to make sure the different parts of your financial plan are working together.
Most people could use some help keeping their financial house in order. When should you hire a financial advisor? Some people hire financial planners only when they need advice about a specific issue such as saving for college, paying down debt, or evaluating an early retirement offer. Others hire a financial planner to complete a comprehensive plan and monitor that plan on an annual basis. No matter what your reason is for hiring a financial planner, one of the greatest advantages of working with a financial expert is the added motivation you’ll have to achieve your financial goals.
One concern with hiring a financial professional is that anyone can call themselves a financial advisor. Unlike lawyers and CPAs – where you have to take an exam and have specific training before you can hold yourself out as a CPA or an attorney – there are no such requirements before you can call yourself a financial planner.
However, there are some designations in the financial planning field that help distinguish experienced, trained financial professionals from others who may not have any qualifications. Some of the designations to look for include:
Certified Financial Planner (CFP) – to be a CFP, you must meet an education requirement which shows that you are knowledgeable in all areas of financial planning, you must pass an exam, and you must have three years of relevant experience before you can hold yourself out as a CFP. CFPs must also abide by a Code of Ethics which are enforced by the CFP Board.
Chartered Financial Analyst (CFA) – A CFA is a title given to someone who has passed an exam about investments and finance administered by the Financial Analysts Federation.
PFS – CPAs who have several years of experience providing financial planning for individuals can attain the PFS designation. CPAs who also have the PFS designation have extensive tax and financial planning experience, so they are a good choice for people with complex tax situations.
You should contact and interview several financial advisors before hiring one. Some questions you should ask include how are you compensated, do you have an area of specialty, do you have clients similar to me, how long have you been providing financial advice, etc.
Working with a Fee Only Financial Planner
You don’t have to be rich to work with a financial planner. Many people hire financial planners to help them achieve their financial goals and dreams, whether they have a million dollars or just a few thousand dollars saved. You’d be surprised at the number of people who have turned to financial advisors for help with retirement planning, investment advice, budgeting and debt management, tax planning and/or comprehensive financial planning.
There are many reasons why you might want to talk with a financial planner including:
– to learn how much you really need to save for retirement
– to determine the best investments to meet your goals
– to make sure you are getting all of the tax benefits you are entitled to
– to understand how much and what type of life insurance you need
– and many more…
You don’t need to wait until you have enough money or are ready to retire to work with a financial advisor. Young people just starting out can benefit from financial planning just as much as married couples preparing to retire in a few years can. Whether times are booming or we’re in a recession, whether you just need help creating a budget, saving for your children’s college education, or you have complex retirement planning needs, anyone can benefit from financial planning.
What Should You Expect When Working with a Financial Planner? inheritance tax calculator
In general, a financial advisor will start by reviewing your current situation and helping you identify your financial goals. Once your goals and objectives are determined, a financial planner will prepare a plan that will help you achieve your financial goals through saving, investing, budgeting, etc. The plan should cover all aspects of your financial situation including cash flow and debt management, investments, retirement, taxes, insurance and estate planning. Other areas that may also need to be considered include saving for college, or business planning.
Once you have a financial plan in place, you should review it periodically to make sure you’re still on track to meet your goals. Your financial situation is always changing, so your financial plan should change as well.
What to look for When Choosing a Financial Advisor
There are many types of financial planners including fee-only financial planners, fee-based advisors or the traditional brokerage firm. Each provides different services, and more importantly, each is compensated differently. Brokerage firms typically sell you a product for a commission and their main service is investment advice. Fee-based advisors will generally provide more comprehensive financial planning, but their main service is managing your investments for you, and they earn a percentage of the assets managed for their compensation. Fee-only financial planners focus more on comprehensive financial planning, including retirement planning, investment advice, budgeting, tax strategies and estate planning. Fee-only financial planners typically charge an hourly rate or a project fee and don’t earn commissions on any products recommended.
In addition to services offered and compensation, you should also look at the advisor’s experience, qualifications, and their area of expertise before hiring them. While CFPs and NAPFA-registered advisors must have met certain education and experience requirements in order to use the credentials, other financial advisors may not have any experience or qualifications.