By Tosha Dunn, Spring 2016 Student Intern
Broadly, financial planners are professionals who you pay to manage your investments. They come in many different flavors from investment advisers to brokers to Certified Financial Planners. All of these are people who you may consider leaving in control of your money because, hey, you maybe feel like you shouldn’t be the one making these decisions. Given this, how do you decide who is right for you and your money? What do any of these people actually do?
Financial planning, in a nutshell, is essentially about lifestyle: do you want to be eating cat food or people food?; do you want to work until you’re 90 or actually retire and have hobbies (I know, painting and the great American novel)? A financial planner is someone who can look at your current salary, current spending habits, current debt, current assets, etc. and measure financial items against the future that you have in mind. They can then determine what level of savings you need to attain the desired retirement lifestyle. Your age also plays a factor in this calculation: if you’re younger, you can save at a lower rate over a longer time to reach your goals, and if you’re older, you will likely be looking at saving a higher rate of your salary over a shorter period of time. And to be clear, you aren’t going to be just saving money in a bank account; you’re going to be considering investment strategies to reach your goal. This is also where a financial planner comes in–depending on your age or goals, they can recommend the sort of investments that will best suit you. You may want to pursue a more aggressive strategy or, if you are looking for safer investments, you may prefer a more conservative strategy. Again, this is where advice is helpful.
But who is the right advisor for you? According the SEC some planners will get into all the details of who you are as an investor, but some will ask you just very basic questions. This, of course, can be a risk for you–do you want someone to go through your financial background and hopes with a fine tooth comb or do you just want someone who will ask what your “risk tolerance” is and move along with some suggestions of some items that you may not even fully understand? That issue is more of a personal decisions, but a more informed and careful planner is likely to be more helpful than one who isn’t.
So Certified Financial Planners sound fancy, and they are to some degree. Being a CFP requires training and certification for membership, and the CFP Board also enforce ethical requirements on their members, meaning that were a member to violate one of their ethical rules, the member can be sanctioned by the Board. The CFP Board’s ethics include issues of professionalism, competence, and diligence among others. The CFP also makes its sanctions publically available, so you can investigate the background of a person you are considering as a financial planner. CFP’s may also hold the same qualifications as investment advisers and brokers because the titles are not mutually exclusive.
Investment advisers and brokers are required to participate in training. They are also held to the standard of their state’s securities laws. Investment advisers generally work solely in the area of recommending investments, while a CFP may take a more holistic approach to your investment and savings needs. Still, investment advisers and brokers are required to take specific tests to sell securities and more complicated financial products, and to find out the qualifications of an investment adviser or a broker, you can simply visit Broker Check or the SEC. This will let you know what certifications the broker has and if there are any current or past consumer complaints against the adviser/broker.
Of course, you are the master of your destiny, so choosing a financial planner or a broker, etc. may not be the route for you, but we’ll cover that later. Overall, selecting a financial person is difficult and can be scary, but researching the person is helpful and can give you some piece of mind about the person who will be calling some shots about your nest egg.