Why Hire a Financial Planner

financial planner plan Many investors go about their investing mostly clueless as to what to do. As a result, the average investor only earns roughly 2.1% per year, which is much less than the market earns as a whole. To combat this, you can hire a financial advisor. Doing so will help ensure you earn a higher return, assuming you pick a good one. But the bigger reason as to why to hire a financial planner isn’t simply for help with investments. It’s for the planning.

Why Hire a Financial Planner: Benefits

Yes, investments are an important aspect in your financial future. But in the grand scheme of things, it really is a smaller portion than most think. Once you determine your risk tolerance and choose a bucket of low cost mutual funds and ETF’s, the investment phase of your financial planning is over. The most important part of a financial planner’s job isn’t even picking the investments, but rather the fact that they help keep your emotions in check. When the market gets volatile, a good planner will keep things in perspective and help you through the rough waters.

When I worked for a financial planning firm, this is exactly what we did. When the markets went crazy back in the summer of 2011, the phones were ringing off the hooks. Our clients were scared. But we held their hand and kept them invested. We told them that this was just some volatility and it will pass. And it did. The market continued to move higher after that.

We even had a client thank us for keeping them invested saying that they would have bailed many times before and they would not be in as good of financial shape as they are now that we kept them invested.

Even with the importance of keeping you invested and moving towards your long term financial goals when the stock market goes crazy, hiring a financial planner offers you other great things as well, including:

Insurance: Insurance is an important part of your financial well-being. If you do not have proper coverage, one accident can wipe out your savings and more. A good financial planner will sit down and review all of this with you to make sure you are protected should the unfortunate happen.

Taxes: No one enjoys paying taxes. A good financial planner will handle your taxes or will work with your CPA to keep unnecessary taxable events from being triggered from your investment portfolio and possibly selling some investments that have lost value to offset some of the taxes you do owe.

Estate Planning: A good financial planner will help you to protect your wealth once you pass away. The setting up of trusts and giving of gifts can help you to avoid the dreaded estate tax, should you have enough assets to be hit with this tax. But even if you don’t have a sizable estate to pass along, a financial planner can help you to get your will drafted and complete other important documents so that you can rest easy knowing that your finances are safe and well taken care of in the event you pass or are unable to manage them any longer.

Expert Knowledge: A good financial planner is there for you to bounce ideas off of. It’s great to have someone who you can trust to discuss things with. Maybe you are thinking of buying a second car or adding a pool to you backyard. Before doing anything, bouncing your thoughts off of your planner may shed new light on the topic. The planner may think of something that you aren’t or point out a better way to go about getting the pool or adding a second car.

What To Look For When Searching For A Financial Planner

Now that you know how valuable a financial planner can be, how do you find one? This is where it gets tricky. I won’t lie, there are some shady characters out there who are more interested in making themselves money rather than seeing you succeed financially. Therefore, you have to put in a little bit of work to find a good one.

Two great places to start your search is The National Association of Personal Financial Advisors (NAPFA) and also through CFP.net. This will ensure that the person you could be working with has the designations to do so.

From there, you want to verify that they are a fiduciary. What does this mean? It means that they have to put your interests ahead of their own at all times and do what is best for you. Surprisingly, not all financial advisors or planners are fiduciaries. Yes, most will still put your interests first, but they might not put you in the best investment possible. They might put you in an investment they get a kickback or commission for placing you into. A fiduciary won’t do this. They will put you in the best investment, regardless if they make any money from doing so or not.

Once you have your list narrowed down, it is time to meet with them all. When you meet with them, you want to get a sense for them as a person and if you can build a relationship with them. After all, that is what you will have with them, is a long-term relationship. As such, you need to make sure you two are compatible.
So take notes. Here are some important things to discuss with potential financial planners:

  • Do they have the same values as you? There is no point in working with someone if they don’t have the same values as you. The relationship will always be strained and you both will regret it from the start. It’ critical you make sure you both are on the same page from the start. For example, If they believe in long-term, buy and hold investing and you are a stock trader, there is not a fit and a long-term relationship isn’t possible. But even if they reject you, many will give the name of another planner who might better suit you.
  • What about the communication process and how does it work? You are interviewing them as much as they are interviewing you. Make sure you know how often they will communicate with you and by what means (phone, in person, etc.). Be sure to let them know how much hand holding you need as well.
  • How are they compensated? It is very important you understand how the financial planner gets paid. I talk more about this below.
  • Are they a fiduciary? See the point above about why this is so important.
  • What industry designations do they have?
  • How long have they been practicing?
  • Do they have any or have they had any legal actions against them?

You can find more great questions to ask in this resource.

Lastly, be sure that the first meeting is free and run from any planner that starts offering you investment options at the first meeting. Without knowing anything about you, they cannot offer you sound, financial advice.

How To Financial Planners Get Paid?

There are 2 main ways financial professionals get paid:

  • Fee Only
  • Fee Based

Fee Only: These planners get paid either by a flat fee, by the hour, or by a percentage of assets under management. In many cases, these financial planners are fiduciaries. Depending on how much you have to invest will many times determine which pay option you are given.

Most high net worth planners (those that work with people who have $1 million or more to invest) charge via the assets under management route. If you have a small amount of money, chances are you will get charged by the hour.

If you are charged by the hour, expect the price to be around $100-$300 per hour.

Fee Based: These planners get paid by commission and can also be paid through various fees they charge you. When it comes to commissions, the commission they earn is by putting you into a specific investment or product.

Many of the financial planners you see at the larger brokerage houses are fee based.

So which one is better? In my personal opinion, I would go with a fee only advisor 100% of the time. The reason I say this is the conflict of interest fee based advisors have. Whenever you introduce a commission into the mix, you raise the possibility of trouble.

I want my planner to suggest the best product that is right for me. With a fee only planner, I get this. With a fee based planner, I run the risk of being put into an investment because the planner is going to make some money off of it.

In my mind, when I put myself into the shoes of a fee only planner, I can see the temptation to suggest a product for the client that is “good” and I make some money off of versus putting them into something “great” and I don’t make money off of. It is a very slippery slope as they say.

Regardless of which path you go, always question why they suggest a specific investment. You want to understand their thinking. Remember, it is your money at the end of the day, so make sure you ask questions.

When it comes to fee based planners, asking questions can help you to understand if they are putting you into an investment simply because of a commission.

Reasons We Give To Not Hire A Financial Planner

I understand that many of these things I point out can be handled by ourselves. You can handle your own investments and insurance needs. You could even do your own will too.

But just look at how many people don’t have a will, never mind how many don’t have an up to date will. Life happens and we put off things, especially things that will happen in the future. A good financial planner helps you to think about these things now because after all, there is no guarantee that we won’t need them until later.

The point is, when it comes to our financial lives, many of us are lazy. By hiring a planner, we ensure we take care of these things and that our financial lives are protected and safe.

Another reason we give many times to not use a financial planner is the cost. A couple hundred dollars per hour is a lot of money! Same holds true if you are paying a percent of your assets that the planner manages. But we have to learn to look past the short term and look at the long term.

In 20 years, will we be happy with where our finances are at? If we hire a financial planner, the odds of this are a yes.

Going back to my days working for a planner, we had a client one day tell us he looked back over the years to see how much he paid us in fees. He said it came to over $100,000. He then went on to say that it was the best $100,000 he ever spent because we held his hand and helped him to stick to his financial plan while the market tanked during the dot-com bubble and the housing bubble. Had he been on his own, he would have sold out and hid his money under his mattress. Because he stuck with his plan, he grew his wealth and ended up with over $2 million dollars.

On the surface, $100,000 sounds like a lot of money, but it is a small amount to pay if it means the difference of you being worth $500,000 or $2 million. Learn to look at the long term and not just the upfront cost. There are instances where a higher upfront cost makes sense.

Final Thoughts

A financial planner does cost money, but that cost is small in comparison to sense of security they provide you. Of course, this doesn’t mean to just pick anyone who claims to be a financial planner. You have to do some leg work and find out which one is best for you and your situation and to make sure that their fee’s are not excessive.

Overall, the answer to the question, why hire a financial planner is easy: to help get you to where you want to go because for most of us, we need a guiding hand. We are lazy with our finances and a good financial planner will help us to get our finances in order and hold our hands when things get tough.

If you want to go the financial planner route, take the time to visit the websites I noted above to find ones in your area to interview. If on the other hand you want to handle your finances yourself, I have some resources for you.

For starters, you have to read my post on becoming a stock market millionaire. This will give you the foundation for investing your money.
I also encourage you to read my ebook, 7 Investing Steps That Will Make You Wealthy. It has more tips and goes into more detail than my post above.

Finally, you have to make sure you are tracking your investments so you can make sure you are moving ahead financially. Personal Capital is a free tool that I use for this. It shows me my total investment portfolio (even though it is with various firms), my asset allocation and how much I am paying in fees. It truly is a must have for any do-it-yourself investor. Heck, even if you have a planner handle your money, it helps you to question your planner to ensure they are doing the best job for you and your money.

16 thoughts on “Why Hire a Financial Planner”

  1. We do not have a financial planner yet as I handle all of our investments and am not at the place where the cost could be justified. That said, they can be a great way to better manage many of these things in order to make sure you’re earning/doing what you should be.

    1. It also is more difficult to find financial planners when you don’t have very many investable assets. When starting out, just follow a well-thought out plan so you can still be successful while growing your portfolio.

  2. While most financial planners will have connections that can help you with taxes and estate planning, not a lot of them can do it all themselves. Furthermore, I’m not sure I’d want my investment guy to have that broad of a knowledge…I’d rather have 3 seperate people that were experts in each of their respective areas.

  3. My Financial Independence Journey

    I do not have a financial planner. I have to admit that I’m not particularly interested in getting one, either. I worry a lot that I would wind up overpaying for canned advice that I can get on the internet for free. Finding people (anyone, not just financial planners) who can actually think about a problem in a data driven way and make recommendations is very rare.

    I’m a reasonably bright guy, so the reality is that I can very rapidly get myself up to speed on the basics of financial planning and investments. I do all of my own investing and my own financial planning.

    If my tax situation becomes more complex, I will consider getting a CPA.

    1. It sounds like you have made up you mind. As long as you are able to be a smart investor, you can go at it alone. But if you find yourself always jumping in and out of the market chasing returns, then a financial planner is a good option.

      I do agree that great planners are hard to find. You do have to do your homework to find the right one for you since they aren’t all the same.

  4. I’ve always avoided going to financial planners only because of the costs. I need a convincing argument that the financial outlay to hire one will yield a return on my cash. So far I haven’t found one yet!!

  5. I do not hire a financial planner because my husband is a CFA charter holder but is too lazy to do our own financial planning as he works 90 hour weeks!

    But I finally hammered it in that it needs to be done which is why this is the first year that we have a plan and a strategy.

  6. I don’t go near Financial Planners – instead I only invest in markets that I understand and in things that interest me. I don’t invest for the short term and couldn’t justify the cost of paying someone else to advise me on what I believe I can research for free!

    1. It’s good to hear that you only invest in what you know and understand. The real value a financial planner provides is more with the planning and less on the choosing of investments. A good planner can help you make the right financial decisions if you don’t know exactly what is the right move. For example, you may be looking into a refi. Just because you are getting a lower interest rate doesn’t mean that it’s a good idea to refi. If you don’t know what to look for in order to make that decision, a financial planner can guide you.

  7. Getting a financial planner is really an investment. But the money you may earn is more than twice as much.

  8. Great financial planning suggestion. Indeed, there are significant things that might be missed out without the assistance of an expert. Applicable tax discount, possible exemption from fees, or optional rates that are favorable under the circumstance.

  9. Wow that’s an interesting statistic! If I had enough money to have a financial planner, I’d consider it, but in the meantime I’m just traveling Hawaii and hanging out waiting for my next big opportunity 😉

  10. I think it is a great idea to interview financial planners before hiring them. That way, you can see how well you mesh and if you like their style. I’ll definitely have to remember the resources you list to help my husband and I with the search!

  11. Making sure your planner is a fiduciary is so important because it ensures they have your best interests in mind always. Thanks for sharing this advice!

Comments are closed.

shares
Scroll to Top