Individuals who look into financial planning are believed to be forward thinking, conservative and caring people who wish to enjoy their retirement years, would like to financially help their families, and would like to have peace of mind to know that their lifestyle may continue.
Some individuals do financial planning for themselves, while other seek assistance from a professional. If you are thinking about hiring professional help then it is important for you to know what you can expect a good financial adviser will provide you, as well as have the ability to discern the difference between someone who is a salesman and somebody offering fiduciary financial planning advice who carries a valid designation or certification.
Financial Planning Defined
The process of financial planning includes:
Understanding what your financial goals are; knowing when your money will need to be used, and what you will need to use it for. Next a plan of action needs to be laid out with specific steps taken in order for those goals to be achieved.
For a financial adviser (also referred to as a financial planner) to provide good advice, he must collect financial and personal data about you. This data is used for creating projections that inform you how and when you will be able to accomplish your goals.
What activities are performed by a financial adviser?
- What you should do differently
- How much money you need to save
- What kinds of retirement accounts you should use.
- What kind of mortgage you should get
- How much and what kind of insurance you need (it would include disability, long term care insurance, life insurance. Some financial advisers also provide advice on health, casualty and property insurance)
- How much money should be kept in your emergency fund
- Which changes can help with improving your tax situation
- The rate of return that will need to be earned to accomplish your goals within a particular time frame
- Whether it is sensible for you or not to pay your house off
- What the appropriate investment risk level is for the different kinds of accounts you own
- Many financial advisers provide tax planning and estate planning services.
What areas should a financial adviser provide advice on?
Ask which of the questions above they address, and if their advice is put into writing.
How much do financial adviser’s charge?
There are several ways that a financial adviser can charge:
- A flat fee for completing a particular project
- An hourly rate
- An annual retainer or quarterly fee
- A fee that is based on a percentage of assets that are managed for you (Ranging from 2.0% to 0.50% per year. The fee tends to be lower with more assets.)
- Commissions that are paid to the planner from insurance or financial products that you purchase from them.
- A combination of commissions and fees
How To Know How Your Financial Planner Is Going To Be Paid
You should always ask the financial adviser to explain how they are to be compensated.
For those who are working as registered investment advisers, they will need to give you an ADV Part Two, which is a disclosure document that will provide all of the details on any possible conflicts of interest and all fees.
A good financial planner does not:
Make any recommendations to you until they have a thorough understanding of what your goals are, and have come up with a long term custom financial plan just for you.
Should you happen to meet with somebody who starts to discuss financial products with you immediately, the most likely the person is a financial sales person and not a financial planner.
A Good financial adviser does the following:
Gather account statements and information on all aspects of your finances.
Is investment advice offered by the financial adviser?
Investment advice is also provided by some financial advisers. However, Financial planning is very different from investment advice. Ask a prospective financial planner whether they provide specific investment advice or planning services only.
I hope that helps to understand how a financial adviser can help you but also understand what to look out for when searching for a good fit for you.