Working Towards Your Financial Goals With A Personal Financial Planner
For clients that haven’t worked with a financial advisor before, the assumption is often that everything starts with investments. What funds to buy, when to buy and how much to invest are typical questions. Since most financial commentary is centered around investing – and because many non fee-only planners make their money from investments – it’s easy to understand why consumers might think that’s where the planning process starts. In our view, though, financial planning starts with establishing a robust financial framework and only once that framework is in place do we turn to a discussion of investments.
What is Financial Planning?
Financial planning is a process that begins with establishing financial goals. The goals may be short-term – like purchasing a home or paying for private school – or longer term goals including retirement, funding college for younger children or buying a vacation home. Once the goals are established, a plan framework is constructed that reflects current assets, ability to save, how to invest, the amount needed to fund the goals and other key details. Ultimately, the plan framework maps out steps that the client needs to take in order to have a high likelihood of achieving the financial goals.
Some financial planners offer comprehensive planning, which means that they focus not just on constructing the plan framework, but also on related issues including estate planning, tax planning and risk management. Focusing on these issues allows the client to make optimal decisions and to better manage risks to the plan.
Importance of Financial Planning
Most clients find the most valuable aspect of financial planning is that it confirms whether or not they are on track, and that helps reduce financial stress. A plan is also useful in that it provides very specific information as to what a client needs to do in order to meet their financial goals. With that framework in place, if the unexpected occurs – such as the loss of a job or an unplanned for inheritance – it is possible to quickly assess financial impact and map out options.
An additional benefit of working with a personal financial planner is that the planner – and the planning process – can help a client make optimal financial decisions. Deciding when to finance a purchase versus when to pay cash, or choosing the best insurance coverage can all have material impacts on a client’s financial situation. Finally, the greatest long term benefit we have found for clients who have successfully implemented a financial plan is that they have an ever-expanding choice of options as to how they want to live their lives.
When to seek help from a Financial Planner
Typically, clients seek out a financial advisor when an event has occurred in their lives. The event might be approaching retirement, or receiving an inheritance or having a child. Most of the time, the primary goal of the client is to confirm that they are financial prepared, although in “liquidity events” in which the client receives a large sum of cash, determining how to invest the cash can be the driving concern. In either instance though, the planning process is similar in that it begins with establishing goals and then building the plan framework – including how to invest – within which the client works to pursue those goals.
In searching for a financial planner, a few good resources include the National Association of Personal Financial Advisors (www.napfa.org), which is an umbrella organization for fee-only financial advisors, and the CFP Board (www.cfp.net), the governing body for CERTIFIED FINANCIAL PLANNERs™. Once you have identified a few potential advisors, interview them by phone or in-person, and ask for references. While experience, qualifications and whether or not the planner works via fees or commission are all important, a good fit between client and financial advisor is extremely important as well.
