Janet Stanzak is currently president of the board of director for the Financial Planning Association, a role she was elected to thanks to nearly three decades of experience as a financial planner. She spoke with us about how to choose a financial planner, and why you should.
What are some benefits of a financial planner consumers might not be aware of?
Financial planners are uniquely qualified to provide recommendations to consumers that are tailored to their values and particular circumstances. They take into account not just investments, but tax consequences, stage of life circumstances, income considerations, insurance issues, estate planning and your company benefits when considering the best financial choices for you. What other financial advisor or professional has the expertise to look this comprehensively at your financial picture?
Vanguard's recent research indicates a good financial advisor can add 3% in net returns to the client. Paying a fee for advice and guidance from a financial planning professional can add meaningful value compared to the average investor experience. This value added should not be expected to be realized every year, but often is most meaningful in years of exceptional returns or market corrections when clients are tempted to abandon their thought-out plans.
When should we be considering hiring a financial planner?
You may not have the expertise, the time or the desire to actively plan and manage certain financial aspects of your life. A CFP gets a minimum of 15 hours of continuing education per year; many financial planners get significantly more in an effort to have leading-edge thinking through financial problems and solutions. You may want help getting started and may benefit from an objective, third-party perspective on what are often emotional, difficult decisions. In today's hectic world, it can be beneficial to have a CFP® professional help you stay focused and accountable to follow through with your financial plans.
Often a specific event or need will trigger the desire for professional financial planning guidance.
What are some signs of a good financial planner, and why?
First, be wary of people who call themselves financial planners but who appear more interested in promoting specific financial products at the expense of your real needs and goals. Look for a CFP® professional who is ethically bound to act in your best interest and can help you address a variety of financial needs, not just investments, insurance or taxes.
Secondly, good planners are lifelong learners. They obtain continuing education credits every year to help them stay abreast of changes in the industry.
Thirdly, good financial planners aren't uncomfortable disclosing how they work, how they are paid and any potential conflicts of interest they may have. They know what they're doing and are confident in disclosing all aspects of their business.
Lastly, they aren't embarrassed to say they don't know. It's much more important for a professional to admit they need to research a question than to bluff a response. Honesty in all regards is imperative.
What should we be researching about investing before we speak with a financial planner?
We often go to a financial planner because we don't know or understand all the aspects of investing. Rather than feeling the need to research investing beforehand, it's more important to research the planner. If their website or company information does not disclose their investment philosophy, ask them to explain it to you. This explanation may result in additional questions to ask the planner, or questions you may choose to research on your own to compare your planner's philosophy with other approaches. The "best" investment philosophy can vary depending on who you talk to or what you read. You may have to decide for yourself, based on your risk tolerance and your investment preferences, just what philosophy is best for you. If that research is beyond what you want to do, you simply need confidence that the approach your financial planner exercises has worked for clients in the past and currently.
What are some trends in personal finance we should be keeping an eye on?
The advent of robo advisors that have actually been around for awhile, but more recently have become more well known through marketing and advertising. These are technology-driven online platforms that may or may not provide personalized advice. This is a way to obtain investment advice but does not have the same comprehensive approach of a financial planner. A recent Gallup poll found that "U.S. investors are more likely to have a dedicated financial adviser than to use a financial website for obtaining advice on investing or planning for their retirement, 44% vs. 20%." Yet with Millennials so comfortable with technology and the desire to do more on their own, one has to wonder about the future impact of robo advisors. We might expect some advisors to integrate a robo advisor component into their business models in an effort to outsource investment management and retain more valued planning services.