What’s a Financial Planner? Answers to Three Common Questions

Personal finance can feel overwhelming. An insightful article in The Atlantic explored financial literacy and reported, “While Americans are not expected to manage their own legal cases or medical conditions, they are expected to manage their own finances.” I’m curious - who do you trust for financial advice? Are they knowledgeable, experienced, and on strong financial footing themselves?

The wealthy often teach positive and valuable money habits to their children. But what about those of us that didn’t grow up rich? What about women that grew up in families where it was taboo, rude, or stressful to discuss money? How can we ensure we’re making the right steps with our money?

One option is educating yourself and managing your own money. There are fabulous financial education resources available; between books, podcasts, and personal finance forums, we can become very money-savvy. But sometimes, we want an expert that can specifically examine our unique situation, and answer questions about our goals and challenges. This can be a role for a financial planner.

What can a financial planner do for me? Fair question - because of the lack of regulation around titles and designations, services can vary. Broadly, planners work with you to build a financial plan that supports your goals. A financial planner can analyze your current situation, help you set financial targets, recommend changes to meet your objectives, provide advice, and measure your progress. A quality plan will evaluate and include your entire financial landscape, including sources of income, expenses, debts, investment accounts and holdings, life insurance, and more - comparing your current state to your goals.

One portion of financial planning is investment planning; examining your specific investments, recommending how much of your portfolio should be in certain mutual funds or ETFs. But financial planning is wider than your investment strategy. If you’re just looking for investment advice - great, but a planner offers wider support. Fee-only financial planners change an hourly rate, and often offer an initial consultation for free.

Where can I find a financial planner? I suggest starting in two places. First, ask family and friends for referrals. Ask if they’ve had a productive, positive experience that has improved their financial situation over the long term. Second, explore the CFP Board’s directory of Certified Financial Planners. These individuals have received a certification that includes completing practical and theoretical financial education, passing a rigorous examination, gaining years of hands-on experience, and upholding a high standard of ethics. Importantly, they put the client’s financial interests ahead of their own. (Importantly, this is not true of all “financial planners” or “financial advisors.”)

A good financial planner can be hard to find. Many are salespeople “veiled” as planners, others are only able to offer a limited set of financial products due to the firm they work for, and others may trade in relationships - versus quality financial advice. I’ll be clear - my bias is always towards fee-only financial planners that have attained a CFP certification. Be prepared to have introductory meetings with at least three before you select one that is right for you.

What other financial advice is out there? Accountants that are CPAs are very specifically educated about the U.S. tax code. Some CPAs achieve the Personal Financial Specialist credential (PFS); these accountants are well versed in aspects of financial planning including estate planning, investing and retirement planning. While financial planners are generally well versed on taxation, they are not required to be tax experts. So, many women choose to work with both a CPA and a financial planner, to ensure their financial plans are tax-efficient. CPAs have various fee structures but typically charge an hourly rate.

Wealth managers are also available and come in many forms. In general, wealth managers work in firms that provide financial planning, tax advice, and they will actually manage your investments on your behalf. Wealth managers typically charge by taking a percentage of “assets under management,” or how much money they are managing on your behalf.

One percent is a typical rate for wealth management services; if your wealth manager oversees your $1.2M portfolio, you’d owe them $12,000 annually. This is on top of investment fees (typically expense ratios, sometimes commissions) associated with the investments themselves. I used a $1M+ example because many wealth managers have a large investment minimum. As you can likely guess from my prior posts, I do not believe most of us require a wealth manager. A 1% fee sounds small but will eat away at wealth over the long term.

In the next post, we’ll explore how to pick the perfect planner (if you’ve decided you need one!) I’d love to hear your comments on this topic. It took me years to figure out the right balance of money professionals and everyone’s need (and desire) for advice differs.

xoxo, Ms. Financier