Given all the changes that take place in the economy, the markets, tax laws and in our individual lives (job changes, retirement, births and deaths), making good financial decisions is increasingly difficult. Obtaining competent trustworthy professional advice can be very worthwhile and provide financial peace of mind.
There are three general areas that a fee-only Certified Financial Planner (CFP) can help you:
1. Areas in which you know you need help
This is the obvious. When seeking a financial advisor, there is usually a triggering event which can fall into four categories:
- Financial triggers- Change in income, inheritance, business exit, winning the lottery, etc.
- Advisor relationship- Dissatisfaction with current advisor, advisor retires or dies, desire second opinion
- Change in life stage- Reaching a certain age, marriage, divorce, death, nearing retirement, birth or adoption of a child, etc.
- Other- Concerned about the economy or the markets, realization that you may not know as much as you think you know about financial decisions, recommendation from another professional that you should seek help, etc.
The trigger will result in wanting advice in a specific area or the areas where you know you need help. The birth or adoption of a child triggers concerns about education costs. Impending retirement triggers the need to evaluate where income will come from after the end of the paycheck. How do we save for a house while paying down student debt? Are my investments well suited to my goals and on and on?
2. Areas you don’t know about that are important to your financial well-being
This topic can be as important or even more so than the areas where you know you need help. There can be many topics that you do not know you do not know about that can be important to your financial well-being.
There are many areas in financial planning, which can include defensive elements like: estate planning, risk mitigation (insurance) and your current financial status (income, spending, taxes, debt, etc.)
Offensive elements of financial planning can include advanced planning topics (retirement and education planning), investments, risk tolerance determination. Another topic is “other”, which means things specific to you, including debt management, stock options strategy, annuity review, social security strategy and so on.
3. Areas you think you understand…but your understanding is incomplete or incorrect.
We all gather information over time from a variety of sources. It could be from our parents, a co-worker at the water cooler, from the media or on the internet. This advice is often general in nature and is not specific to your situation.
When you work with a fee-only financial advisor, the advice is specific to your situation and without the conflicts of interest when an advisor is trying to sell you a product. Often the result of this advice can be different than what you believed prior to receiving recommendation specific to you.
Why a Fee-Only CFP Advisor: Trust and Competence
Seeking out a financial advisor can be fraught with perplexity and uncertainty, since according to Deloitte research, few Americans trust the financial services industry. “Only 15 percent highly trust mutual funds, investment advisors/brokers or financial advisors” according to Lisa Earle McLeod of the Huffington Post.
The reason for this distrust is that most financial advisors are also sales people, selling products that will pay them a large commission, sometimes at the expense of the consumer.
It is for this reason that if a consumer wants “real advice”, you should seek a fee-only financial advisor that does not sell products and provides advice that meets the Fiduciary Standard 100% of the time, which means the advice is required by law to be in your best interest. These folks would work for a Registered Investment Advisor (RIA) and not be registered as an employee of a broker dealer nor sell insurance.
The second factor is the advisor must be competent. The only way to be sure of that is to know that the advisor meets a certain standard. Those professionals that have earned the right to use the Certified Financial Planner designation (CFP®) have at least a 4-year college degree, the proper broad education in financial planning, have passed an in-depth test (45%-55% pass rate), abides by a code of ethics, and maintains continuing education requirements.
If you desire help in the financial areas where you know you need help, as well as helping you in all other areas that could financially impact you and your family, hire a fee-only CFP® financial advisor.
Also published on Investopedia.