Last Updated: February 2, 2009
Americans are struggling to make sense of their finances and retirement portfolios. In many cases that struggle, according to published reports, is leading them straight into a financial planner's office. If you're like most Americans, you are most likely turning, or will turn, to these professionals to help you with your retirement plan or to manage your money. "Investment advice is just a component of what we do," said FPA member Neal Solomon, CFP®, of WealthPro.
Indeed, financial planners often do much more than manage money or create a retirement plan. In fact, CERTIFIED FINANCIAL PLANNER™ (CFP®) professionals typically address your entire financial situation long before managing your money or retirement plan. But what exactly do financial planners do? And, how can a financial planner help you?
"We are after all integrators of our client's lives, helping them weave their life threads through the good and the bad times," said FPA member Sam Hull, CFP®, of Whitewater Transitions. "That is what we do so brilliantly when we are at our best."
Planners are Different
The first order of business is to understand the differences between a planner and other types of advisers. According to various published reports and studies, many Americans don't know the differences between a stockbroker, an investment adviser, a financial planner and a wealth manager. And indeed it's easy to see why. In many cases, stockbrokers, investment advisers, wealth managers and financial planners seemingly provide similar services. A stockbroker is just as likely to "manage" your money as a financial planner. An investment adviser is just as likely to build a retirement plan as a financial planner.
But CFP professionals and other experts suggest that there are subtle and not-so subtle differences between financial professionals and advisers. "One of the key differences — and there are many — between financial advisers who primarily focus on investments, and those who consider themselves to be financial planners, is the use of carefully constructed financial projections," said John Nelson, co-author of What Color is Your Parachute? For Retirement and member of the FPA's Public Issue Advisory Council. "Advisers have sophisticated tools for managing portfolios, and thus make investment recommendations for a given moment in time. But most don't do a lot of in depth analysis and projections of the future. That's because it's a lot of work, it requires a lot of additional knowledge about your situation, and it demands a different kind of expertise than portfolio management."
Said Solomon: "The reality is that lots of people call themselves planners." But not all are. Here's a look at what CFP professionals typically do and what you should expect.
A Professional Through and Through
According to the Certified Financial Planner Board of Standards (CFP Board of Standards), the regulatory body that oversees the CFP certification, when you work with a CFP professional, you should expect to receive services that are conducted ethically, with integrity, objectivity, honesty and diligence. "You deserve to have your interests placed ahead of the interests of your financial planner," the CFP Board of Standards writes on its Web site. To earn the CFP certification, the professional must fulfill certain education, experience, ethics, and examination requirements. In addition, they must have continuing education requirements. Learn more about what it takes to become a CFP professional.
Of note, members of the Financial Planning Association® (FPA®) must adhere to a Code of Ethics that reflects their commitment to help clients achieve their life goals. All FPA members are asked to commit to this Code, CFP® certificants and non-CFP certificants alike. Learn more about FPA's Code of Ethics.
In addition, members of FPA have certain standards to which they abide. The FPA Board of Directors last year passed a resolution supporting a Standard of Care for FPA financial planning members. That Standard of Care reflects FPA's belief that those who hold themselves out as financial planners are fiduciaries, regardless of their business model, method of compensation or professional designations. Learn more about FPA's Standard of Care.
In all but the rarest of cases, a CFP professional will follow a six-step process when examining your financial health and prescribing a course of action. According to the CFP Board of Standards, "The financial planning process consists of six basic steps: gathering relevant financial information, setting life goals, examining your current financial status, coming up with a strategy for how you can meet your goals, implementing the strategy, and monitoring the success of the strategy and adjusting it along the way, if necessary."
And more often than not, a CFP professional will address you and your entire financial picture, inclusive of basic financial information such as income, expenses, asset and liabilities, as well as insurance, income taxes, employee benefits, retirement plans, education, and estate planning when analyzing your situation. Typically, a CFP professional will produce a customized written plan that details your financial situation and the planner's recommendations. In some cases, planners might address specific issues, but according to Solmon such advice is delivered in the context of your entire situation.
In many cases, there are tangible benefits associated with having a financial plan and a financial planner. Planners might, for instance, identify ways to minimize your tax bill, or help you purchase the right type and amount of insurance, or help you reduce and select the best mortgage, or help you save and invest your money more wisely. But Solomon said there's another equally important benefit to having a financial plan and a financial planner, "It helps you sleep at night."
Others agree. "A well-known financial planner told me a few weeks ago that while she couldn't forecast the future — no one can — she did help her clients better prepare for it," said Hull, CFP®. "I think that's a wonderful way to put it. The 'future' is comprised of so much more than money, after all. The picture of a life is woven over time into a rich tapestry, with myriad life values like love, security, family, dreams, legacy, charity, giving to others, public service, enterprise creation and others being the warp and woof."
Questions to Ask
If you don't have a financial planner, odds are that you will turn to family or friends for a recommendation. That's a fine place to start. But just because your friends use a certain planner, may not mean that planner is right for you. Usually, it's a good idea to interview several planners before deciding which person or firm to hire. "Your financial situation may be entirely different from your friend's or neighbor's," said Solomon. For his part, he recommends working with a financial planner who has experience working with clients whose profiles are similar to yours.
• FPA's financial planner search service, PlannerSearch
• The FPA and Ameriprise Value of Financial Planning
• Securities and Exchange Commission, Investor and Industry Perspectives on Investment Advisers and
• The New York Times, Your Money Guides: Financial Planners
• CFP Board of Standards, The Financial Planning Process
• CFP Board of Standards, Best Practices When Approaching Financial Planning