A financial planner provides guidance and expert advice tailored to help you achieve your financial goals. Financial planners are professionals who work with various clients to assist them with their financial planning needs in line with their unique situation.
What does a financial planner do?
A financial planner works with you to guide you through the financial planning process. The financial planning process involves:
- Reviewing your current financial situation.
- Helping you define your short and long-term financial goals.
- Working with you to construct a comprehensive plan to achieve your goals.
A financial planner may help you on a one-time basis, or the relationship might be more ongoing. Certified financial planners may provide additional services like investment advice, retirement planning, tax planning, and estate planning.
Do you need a financial planner?
Many people successfully do their financial planning. If this is something that you are comfortable with and feel that you have the requisite knowledge to handle, perhaps the DIY approach is right for you.
However, for many people, the expertise of a knowledgeable, experienced financial planner can be beneficial in formulating a financial plan to help them achieve their financial goals. Besides the expertise that a financial planner brings to the table, they can offer their clients a detached, third-party perspective on their financial situation.
In many cases, this is as important as the experience and expertise they bring to the client engagement. Even the most financially knowledgeable person is emotionally invested in their own financial success. This doesn’t always allow them to take an objective look at their financial situation.
Types of financial planners
Deciding the type of financial planner to choose will depend on your financial situation and needs.
Certified Financial Planner
Certified Financial Planner or CFP® designation is granted by passing a rigorous and comprehensive exam and satisfying education and work requirements. The CFP board requires certificate holders to earn several continuing education hours overtime to maintain their certification.
The CFP is the “gold standard” of designations in the financial planning profession. Certified Financial Planners are consistently held to a high standard when providing financial advice. They must act as fiduciary, and therefore, provide advice that is in your best interest.
Financial planner or financial advisor
Many financial planners hold regular office hours and see their clients in person. Financial planning services may be offered as their primary professional focus or as part of a more extensive menu of services they offer.
Some financial planners provide financial planning advice on an as-needed, hourly basis. Others may create a holistic financial plan on a flat-fee basis with updates supplied via a separate fee structure.
A financial planner is not a one-size-fits-all professional. Many professionals who serve as financial planners offer additional services. The financial planning they offer might be a lead to these other services.
Many financial planners offer ongoing investment advice, plus help in specialized areas such as tax planning and estate planning. Some financial planning professionals may focus their efforts on a specific group of clients such as medical professionals, employees of a local company, teachers, etc.
A Financial planner work under labels such as financial advisor, investment advisor, wealth manager, and others. When looking for help with your financial planning needs, be sure to look closely at the services these professionals offer and how they charge for these services. Always remember, not all financial planners are certified financial planners (CFP).
Robo advisors
In recent years, several robo advisors have emerged on the scene. These online advisors use algorithms to provide investment management primarily. A robo advisor may be a great low-cost solution to help meet your goals if you’re starting. If your financial situation is not complex and you do not need a comprehensive financial plan, a robo advisor may be ideal for your situation.
Financial planning help may be included in the fees you pay or may be extra. Some robo advisors offer the option to speak with a live financial planner. Still, this generally involves an additional cost or having a minimum amount of investment assets with them. As with any service you might consider, be sure to verify that the financial planning services offered by any robo advisor that you are considering align with your needs.
Online financial planners
Several services focus specifically on providing financial planning advice through their online platform. Unlike robo advisors, who focus on investment management, these online services focus on financial planning, retirement planning, and related areas.
Again, be sure to thoroughly check out any online financial planning platform you may consider to be sure that their services fit your needs and fully understand any fees or charges involved.
Financial planner vs. financial advisor
These terms can be confusing to those looking for financial advice. In reality, there might not be much difference. Someone who holds themselves as a financial planner focuses primarily or exclusively on providing financial planning advice.
Those who call themselves financial advisors, investment advisors (or advisers), wealth managers, or who go by other labels may offer very solid financial planning advice as part of an array of other services they offer, including investment management.
It pays to ask any prospective financial professional you are considering about the services offered and the types of clients they serve to ensure you find someone who is a good fit for you.
Fee-only vs. fee-based
These terms can be confusing to many clients. It is critical to ensure that you fully understand how anyone you work with for financial planning or any other type of financial advice is compensated.
Fee-only means exactly what it says. Fees paid by the client will compensate the financial planner. In a financial planning engagement, this might be hourly, a flat fee for the plan, or included as part of other services the financial professional provides you.
Fee-based or “fees and commissions” often involves a financial planner providing financial planning service for a fee and sales-related compensation. The planner will help the client implement the financial planning recommendations via investment and financial products that pay a commission or a percentage of assets under management to the financial planner.
We can’t stress enough the need to be 100% clear about how any financial professional you are considering is compensated before engaging their services.
Working with a financial planner
When working with a financial planner, you should expect to be asked a lot of questions about your financial goals, as well as your personal and financial situation. Your planner will ask for detailed financial information about your investments, your spending, debt, retirement savings, and a host of other areas.
After this information-gathering process, you can expect your financial planner to take some time to formulate their recommendations and create a holistic financial plan. During this process, they may have additional questions as they review the results of the data they have gathered from you.
Once completed, the financial planner will then present their recommendations to you. If they are helping you with a few issues, they will likely send a report for your review. If it is a holistic financial plan, they will generally present a preliminary plan before finalizing it, which allows you to ask additional questions and provide any changes you may have.
After this initial engagement, you may want to work with the planner on a more regular basis if applicable based on the services they provide. In all cases, you should feel empowered and encouraged to ask them questions and challenge their assumptions if appropriate. If the planner doesn’t promote this, they may not be someone you should have work with.
The bottom line
A financial planner helps clients organize their financial goals and helps devise strategies to allow them to achieve their goals. Financial planners come in several forms, including online and robo advisors. It’s essential to pick a financial planner that you are comfortable with, provides the best value, and who you feel can help you achieve your financial goals based on your unique situation.