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What “Financial Planner” Really Means

If you’re in the market for financial advice, you probably have seen a number of terms used to describe those in the business: financial advisor, investment manager, broker, agent, wealth manager. The list could go on and on, even without the alphabet soup of professional designations. Another term you are likely to see is “financial planner,” which has gained prominence with those who want more than just an investment manager or broker. And as planning services have grown in popularity, the number of advisors holding themselves out as financial planners has increased accordingly. Unfortunately, the competence and experience of these advisors can vary widely. So what separates the true financial planners from the posers?

First and foremost, financial planning is meant to be comprehensive. While many advisors will focus on one element of your financial situation, such as retirement or life insurance, a true financial planner is trained to consider a number of elements holistically. The comprehensive planner requires a complete picture of your financial situation before he or she will develop any recommendations. Depending on the situation, this picture will include the following components:

  • Retirement planning
  • Education planning
  • Budgeting and cash flow planning
  • Investing strategies
  • Insurance planning and risk management
  • Income tax planning
  • Legacy planning

The relationships among these components are many and, as such, the risk of addressing just one or two in isolation becomes clear. Of course every situation is unique, and there may be situations where not all elements are considered. But without a holistic view, there is no way for the advisor to know if his recommendations are in the best interest of his client. This is the essence of comprehensive planning.

There are other distinctions as well. True financial planners tend to be client focused as opposed to product focused. Many offer their services on a “fee-only” basis, meaning that they do not see investment or insurance products, and do not accept commissions or referral fees. This means that the cost of financial advice is transparent to you, and you will see a tangible connection between the value received and the cost. In addition, because a fee-only planner is working for you and not for a distributor of financial products, you can rest assured that his or her recommendations will be objective and have your best interests in mind.

True financial planners adhere to a well-developed planning process that consists of several discrete phases. Chief among these is a determination of the client’s personal financial goals, needs and priorities. Only when the plan has taken shape will the planner assist clients with other services like investment management. In many cases, financial planning is offered as a standalone service and does not require the client to have a minimum threshold for assets or investments.

Finally, those who advocate comprehensive planning tend to have Certified Public Accountant (CPA) or Certified Financial Planner (CFP) credentials, as opposed to (or in addition to) brokerage or insurance licenses. These credentials require adherence to a rigorous code of ethics, high practice standards and extensive continuing education requirements.

Financial planning is a serious undertaking, and the devil truly is in the details. A bad investment, inadequate insurance coverage, even an outdated beneficiary designation can jeopardize decades of hard work and sacrifice. True financial planners consider all of these issues, and many more. If your advisor isn’t doing the same, is he really looking out for your best interests? Next time you meet, ask for his input on all of the items in the list above. If you’re not satisfied with what you hear, maybe it’s time for a new advisor.

Kevin Fix