The financial planning landscape can be pretty confusing. Not only is it difficult to figure out who has your best interests in mind (as the debate over the fiduciary standard is pretty confusing), but it’s also difficult to figure out who is in the business of EARNING their fee, vice collecting it. This article should serve as a quick snapshot (and starting point for discussions) on what a consumer should consider to be the minimum standard for hiring a financial planner. Meeting these criteria doesn’t necessarily mean success, but failing to do so should prompt you to keep looking for someone else.
1. Tax planning
Financial planners aren’t necessarily tax professionals. Most planners don’t prepare taxes for their clients. However, you cannot make the best financial decisions without considering the tax consequences. Having a financial planner tell you: “You should talk to an accountant about THAT decision” often means, “I’m really just here to talk with you about your investments (or insurance products).”
Conversely, true financial planners usually have the Certified Financial Planner™ (CFP®) designation. As part of the certification process, CFP® certificants have a working knowledge of taxes. They might not be tax professionals, but they generally understand the tax implications of the decision-making that accompanies the financial planning process.
Many financial planners have additional tax credentials. For example, many certified public accountants (CPAs) end up becoming financial planners as well. CPAs can make great financial planners for people who have complex tax situations (such as small business owners), who also have financial planning needs.
An overlooked credential is the enrolled agent (EA) designation. EAs are recognized by the IRS as tax professionals, similar to CPAs and attorneys. This means that an EA can give tax advice to a client, then represent their client if the IRS decides to audit them.
Regardless of the designation, NOT offering tax planning as part of the financial planning services should be an immediate disqualifier. There are too many financial planners who can provide tax planning for you to settle for less.
2. Advice on major financial decisions
Should I sell my house (or buy a new one)? Can I afford to buy a new car? Should I accept this job offer?
These are all legitimate financial planning questions. Discussing these questions is among the services that your planner should offer. In fact, most reputable planners will tell their clients, “BEFORE you make a major financial decision, please discuss it with me.”
Why would a financial planner do that? Because it’s easier to prevent problems than it is to fix them. By making themselves available before the decision, a financial planner can help you avoid a bad decision they might see coming. If it’s not worth their time to see you about a major decision, then they’re not worth their fee.
At the same time, beware the person who seems to answer all of life’s questions with a new investment or insurance product. While many broker reps will give unbiased advice for their clients, some people have the reputation of having a toolbox filled with hammers (because every problem looks like a nail). If the conversation steers you towards an agenda that doesn’t feel comfortable, run away.
3. Financial planning based upon major life changes
Life happens. As life happens, it has an impact on your finances. There are at least two major types of these changes: anticipated & unanticipated.
Anticipated changes: These can look like the major decisions I alluded to above. They can also include things like your children’s graduation, or a parent passing from a long-term illness. But they’re not decisions…they’re things that happen. Sometimes, you can anticipate an event, but can’t act until the event happens. For example, if you have a loved one who’s going through a debilitating illness, you can anticipate what’s going to happen. But, if you’re the executor of their estate, you cannot do anything in that role until that person actually dies. A good financial planner makes themselves available when the time is right.
Unanticipated changes: This can be a car accident, sudden inheritance, or a terminal disease diagnosis. Or it can be any number of things that you couldn’t expect. But you know it’s going to impact your finances, and you need to adjust your plan. Now. Your advisor should be available to help you deal with these changes.
4. Evaluating documents that have to do with financial decisions
Except in the most extreme situations, people usually end up dealing with contracts. Loan documents, workplace retirement plans, insurance policies, wills & trusts, and health care plans are all examples of contracts that are:
- Require decisions
- Hard to understand
Your financial adviser should offer to help you understand these documents. While they might not be able to provide legal advice (financial planners can’t do that unless they’re licensed to practice law), they should be able to walk you through the financial impacts of a document you’re about to sign.
5. Regular communications
Depending on your personality, this can be a huge pet peeve, or it can be a non-issue. However, your financial planner should at least send you regular emails regarding:
- Upcoming appointment opportunities
- Important events, such as tax-filing deadlines or end of year notices
- Items that you may have discussed as important, such as stock-market fluctuation
Many people may feel that they don’t need to be bothered. However, there’s a difference between the client saying that and the adviser not bothering. The adviser should be in tune with their clients so they understand:
- What the client wants the adviser to proactively discuss
- Issues, concerns, and priorities the client may have
- How the client wants the adviser to communicate with them
At the very least, the adviser should proactively offer to schedule regular appointments to ensure that everything is up to date. For example, a client may not want to have an annual estate planning discussion. However, the adviser should at least have a process that informs the client of what the adviser is currently tracking (for example, a list of the beneficiaries based upon the latest copy of the will and account documents that the adviser has). That way, if the client knows that something needs to be updated, they can schedule an appointment at their convenience.
Today, the financial planning landscape is more complex than it has ever been. Today’s true financial advisers are much more capable than the stockbrokers of the 70s & 80s, or the mutual fund salesmen of the 90s. As a result, clients need to be more discerning and knowledgeable about financial planning truly covers.
The adage, “You get what you pay for” doesn’t apply to today’s financial planning environment. The right financial adviser relationship can bring you value far beyond the cost of the adviser’s services, while there are plenty of salesmen who are willing to separate you from your money. While this article outlines five basic services you should see from your adviser, it’s just a starting point. Ultimately, it’s up to you to determine whether you’re getting the value that you want.
What do you think? Are you getting what you expect from your adviser? If you have questions, feel free to send me an email or post your comments below!