What You Must Know About Financial Planners

financial planners

Who Needs Financial Planners?financial planners

How do you know if you need a financial planner? There is more to managing money than picking stocks and mutual funds. Money management involves reviewing your entire financial situation and making sensible financial decisions. So how do you know if you are fit to be your own money manager or will need the help of financial planners? A good place to start is to quiz yourself. For example, how much do you understand about investments, the stock market, mutual funds, index funds, interest rates, insurances, college costs, mortgages, taxes or estate planning? If you need help navigating through a few of those you may think about seeking out some advice.

It does pay to know the different types of financial planners available because you may only need guidance not recommendations or planning services. There are basic financial planners or advanced financial planners; fee based or transaction based and advice only or complete planning services. Let’s review the different types of financial planners so that you can decide which, if any, you can use.

Choosing The Right Financial Planner

Basic Financial Planners

A basic financial planner will help to educate clients on basic money matters. They can be as basic as showing someone how to manage their cash flow or help with budget planning issues. A good financial planner can answer those financial questions you think are too simple to ask. If you are confused or timid about basic money management topics find a good financial planner to guide you. Planners can assist with basic investment decisions or concerns. They also are available to open IRA accounts, advise on IRA contributions and distributions.

Advanced Financial Planners

Advanced financial planners handle a bit more complicated financial strategies. They should start by helping you determine what kind of investor you are. They will do that by assessing your risk tolerance, time horizon and asset allocation mix.

  • Your Risk Tolerance

A good planner will help you to determine your personal comfort with investment risk. We all have different levels of comfort. Work with a planner that understands your level of comfort. They can advise you on which investments to choose that will meet your risk tolerance level. You may not be able to sleep at night if your investments include mutual funds with worldwide exposure due to the riskiness involved, and that’s okay, just be sure to tell your planner that. If you cannot be upfront with a financial planner they cannot do a good job making recommendations.

  • Your Time Horizonfinancial planners

Your time horizon is usually the amount of time you expect your investments to remain active. For example, you probably have a specific number of years until you plan to retire. Leading up to the time you estimate your retirement date to be your goal would probably be investment growth vs preservation. Your advisor would recommend investments that meet your goals. They would also use your time horizon to determine how much you will need to save to meet your projected retirement date.

  • Asset Allocation

Another important service that financial planners can provide is to review your investment mix. You want to determine if your portfolio is well-balanced. You want a diversified portfolio and a planner can help determine that for you. They can determine if you have the proper mix of aggressive, moderate and conservative investments. You want them to also make sure your investments are properly spread between cash, stocks and bonds.

To Pay Or Not To Pay, That’s Up To Youfinancial planners

Some people like working with fee based planners while others will only work with transactional based planners. Both are good, it’s all a matter of personal preference. Let’s look at both types.

Fee Based Planners

When working with a fee based financial planner, you pay a set fee regardless of how much advice or direction is given by the planner. Whether they make investment recommendations or not, with a fee based planner you still pay the set fee. Even if you buy product they recommend, you still are responsible for just the original set fee.

Transaction Based Planners

With a transaction based planner, you only pay if you purchase the type of product the planner is offering. For example, they may recommend a life insurance product that they feel is essential to your financial picture. If you disagree and do not buy that life insurance product, you do not pay the planner any fee. Some people believe that with a transaction based planner you will be pressured to buy products you may not need; whereas with a fee based planner you get more advice. This is where you must do your homework to determine which type of planner you feel comfortable working with. Again, both are good, you just need to decide what works for you.

It’s All In The Final Plan

Your financial plan is a snap shot of your personal financial situation. A financial plan tells you where you are at, where you want to go and how to get there. It is a way of helping with the direction you want to take your life and how much money will be needed to go there. So you want your financial plan to be based on a snap shop of your current finances plus your future goals, your risk tolerance and time horizon.

Financial planners can give great investment advice; but you probably want more out of your financial planner. You want an education and a direction. You are an expert in your line of work; you want to work with a financial planner that is an expert in their line of work. You want them to build you a road map to base your financial future on. Financial planners can be very helpful if you ask the right questions, understand their role in advising you and are patient enough to work with them. Always be sure to choose a planner that is willing to work at your pace not their own. Find someone who will answer any silly financial question you ask. Your financial future is very important to you, so take care of it with someone who has the same interest in it as you do.


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