Life is increasingly complex particularly in the area of finance. There are changes in taxation, governmental regulations, mortgages, credit, insurance, education funding, and the stock market domestically and abroad. Social programs such as Medicare, Social Security, and pensions are undergoing change, which can impact your future.
Given all these changes, making good financial decisions is increasingly difficult. Working with a fee-only planner can help you make better financial decisions and balance current needs with future goals. The result can be financial peace of mind.
A fee-only planner does not sell investments or insurance. You pay for advise by the hour like a CPA or attorney so there is no conflict of interest that exists when commissions are involved.
There are three general areas where fee-only financial planners can help you:
- Areas in which you know you need help
- Areas you don’t know about that are important to your financial well being
- Areas you think you understand…but your understanding is incomplete or incorrect.
These following topics may fall into one of the above three areas depending on your knowledge and experience.
Current Financial Status
Are you overspending and not saving enough for future goals? Can you spend more now without impacting the future? Can you really afford that new home? How will you purchase your next car without borrowing? How do you decrease debt? Are your finances as tax efficient as possible?
Will you have enough resources to live the life that you desire when you retire? Will you have to work longer than you want or can you retire early? How much can you spend in retirement and not run out of money?
Will you be able to fund your children’s education that you desire for them? How much will the education likely cost in the future? How much should you be saving now for the future? What are the best options to save?
How are you protected against adversities and hardships? Do you have too much or too little insurance? Are your premiums reasonable for the coverage you have? If you get sued are you properly insured? How would your family be impacted if you died, were disabled or needed long-term care?
How do you make sure your wishes will be carried out without lawyers and the courts if you were disabled or died? How can you minimize problems for your family at those difficult times? How can you keep the costs low and avoid probate or minimize the tax aspects?
Do you know the expected rate of return of your portfolio? How do you decrease the costs of your investments? Are you getting the maximum return for the level of risk that is appropriate for you? How much risk is that? Do you have an Investment Policy Statement? Are you adequately diversified? What is the Alpha and Beta of your portfolio? Are your investment designed to be tax efficient?
Unfortunately, anyone can call himself or herself a financial planner and many insurance salesmen, Broker-Dealer representatives, and some bankers love to use the term since it lulls potential customers into a false sense of security since the real goal is to generate a commission when they sell you a product.
When commissions are involved, you never know if the recommendation is in the salesperson’s best interest or yours. Salespeople who call themselves financial planners have tainted the reputation of the field of financial planning with overzealous selling of too much and the wrong type of investments or insurance.
Clients should be on guard when dealing with sales people at even name brand financial services companies such as banks, brokerage firms and Insurance companies.
To avoid the potential conflict of interest, use the services of a fee–only financial planner. These planners do not sell products. They simple analyze your situation and provide advice. Since you pay them for a plan or for their time they do not benefit financially if you take their advice. On the other hand, those planners who are Registered Investment Advisors are legally required to keep your interest foremost at all times!
With the complexities of finance, there are many ways that you benefit using the services of a fee–only planner. These can be in areas that you know you need help, areas you do not know about yet, and areas that you think you know about, but your understanding is incorrect.
Michael Chamberlain CFP® AIF®
Disclosure – Mike Chamberlain is a Member of NAPFA, the largest organization of fee only Planners and Garrett Planning Network the largest organization of hourly fee only planners.